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EUR/USD recovery: Short-lived?

H.S. Borji
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EUR/USD recovery: Short-lived?

The euro declined sharply versus the US dollar Tuesday, a sign the common currency’s latest recovery will be short-lived.

Forex traders witnessed a strong rebound for the EURUSD pair at the end of Monday’s London session. Less than 24 hours later, the outlook that favoured the common currency has changed, as central bank speculation and economic data returned to the fore.

With very little room to cut interest rates further, the European Central Bank is considering quantitative easing to stimulate the Eurozone economy, ECB Governing Council member Jens Weidmann said in an interview published on Tuesday.

According to Weidmann, quantitative easing is not out of the question, but something that must be discussed to “ideally achieve a common view.”

If the ECB does in fact begin purchasing euro area government bonds, the common currency’s upside could become severely limited. Knowing this, the forex market began selling the euro Tuesday. In the early North American session, the EURUSD pair was trading at 1.3794, a loss of more than 0.3 percent.

Weidmann’s remarks set the stage for the ECB’s next policy meeting, which is scheduled for April 3.

Economic data didn’t help the euro’s case Tuesday. While generally positive, Ifo business sentiment data largely disappointed the markets. The Ifo institute said expectations regarding future business developments dipped this month. Ifo’s gauge of business expectations declined from 108.3 to 106.4, while the business climate indicator fell from 111.3 to 110.7. Assessments of the current situation continued to improve, with the current indicator rising from 114.4 to 115.2.

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