Shaky global risk appetite is benefiting the Yen, which is regarded as a “safe-haven” currency and has in the past week outperformed most currencies, including the Dollar, while most high-yielding emerging market currencies remain under pressure. The Dollar is up against most European currencies, including the Euro, but the Swiss Franc is struggling to break out of its narrow range around the USD/CHF 0.9940 level.
While tentative signs are starting to emerge that the Dollar’s three-month rally is perhaps starting to lose some steam, it is the Euro which is looking the most vulnerable. A combination of slowing Eurozone economic growth, weak inflation, a far from hawkish European Central Bank and political uncertainty in Italy and Spain has resulted in market participants further paring back their long-Euro positions. The EUR/USD cross traded below 1.16 this morning for the first time since early November and in trade-weighted-terms the Euro is now at the bottom of a three-month range.
The Euro may receive temporary relief if US President Trump decides on Thursday to exempt the European Union from US tariffs on steel and aluminium imports. Ultimately, however, the Euro may struggle until evidence emerges that Eurozone growth and inflation are back on the ascendancy and clarity emerges as to who will be in power in Italy and for how long.
