A confluence of positive news is helping push the euro higher.
(Bloomberg) — A confluence of positive news is helping push the euro higher.
A market-friendly election outcome in Greece, an upgrade for Ireland’s government debt and the prospect of further European interest-rate hikes as the Federal Reserve signals a potential pause have helped offset some headwinds faced by the single currency.
The spate of upbeat headlines helped lift the euro against the dollar and the pound after weeks of losses. It climbed as much as 0.2% on Monday morning to $1.0830, bouncing off the lowest level since March 27 that it reached on Thursday.
The currency has also benefited from recent strong equity performances, with Germany’s DAX Index hitting a record high Friday. With the dollar’s outlook muddied by urgent talks to avert a catastrophic US default, the euro could edge higher in the near term, according to Barclays strategists.
“The Fed’s pause, a positive boost to incomes from lower energy prices, a still-ample China premium and potential unwanted US fiscal tightening due to the debt-ceiling impasse generate scope for further EUR upside,” they wrote in a note.
In Greece — once the epicenter of Europe’s sovereign debt crisis — stocks and government bonds rallied Monday on strong election support for market-friendly Prime Minister Kyriakos Mitsotakis. The outcome puts the nation on track to return to investment grade, following its descent to junk in 2010 and the largest sovereign restructuring in history.
Ireland’s long-term foreign currency debt rating was upgraded to AA from AA- by S&P Global Ratings in a nod to its economic resilience. It came just days after Italy avoided losing its investment-grade status at Moody’s Investors Service, a boost for Premier Giorgia Meloni’s government.
A still-hawkish ECB should also support the euro, with President Christine Lagarde reiterating in an interview Sunday that the fight to tame inflation isn’t over. That was in contrast to Federal Reserve Chair Jerome Powell, who last week gave a clear signal he is inclined to pause interest-rate increases next month.
Still, the risk of the euro getting dragged lower in the near-term remains, particularly if there is further evidence that the region’s economy is flagging.
Euro-area PMI surveys later this week will provide further reads on how growth is developing. Germany’s growth prospects recently displayed “worrying” signals, according to ING Bank NV strategist Francesco Pesole.
“For this week, the balance of risks appears tilted to the downside for EUR/USD,” said Pesole. “We can’t exclude the drop extending to sub-1.0700 levels at this stage.”
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