EUR/USD to Slide due to Strengthening Dollar and Covid Variant Concerns

The United Kingdom and America are resting on bank holidays today. The holiday break gives the EUR/USD pair a valuable opportunity to recuperate after Friday’s storm. Meanwhile, the pair is floating over the 1.22 mark. Yet analysts are not optimistic about its strength, predicting a slide deeper in the near future.

There are several reasons that may pull EUR/USD down: the strengthening American economy, coronavirus variant concerns, and China’s weaker-than-expected economic recovery.

The US economy shows clear signs of strong recuperation. The Core Personal Consumption Expenditure (Core PCE) jumped t0 3.1% yearly. The Federal Reserve relies on this estimate more than on other gauges. An increase above the bank’s target of 2% may suggest that price growth is far from transitory, contrary to the Federal Reserve officials’ repeated claims.

The euro has been rising thanks to the steady vaccination rollout in the Eurozone. But the potential damage from the coronavirus variants should not be discarded. The United Kingdom has already accepted that the reopening of its economy might be delayed. Europe should also take this scenario into account. The euro should factor in such possible obstacles on the road to the European economic comeback.

Meanwhile, investors are awaiting the release of Germany’s preliminary Consumer Price Index (CPI) estimate for May. Their guess is that the data will show an increase of core inflation to 2.4% yearly. If the figures prove to be as investors expect, they will confirm that European price rises lag behind those in the US. For this reason, the European Central Bank will not tighten its policy in the near future.

China’s unimpressive economic growth may negatively affect the EUR/USD pair. The latest data coming from mainland China was disappointing. China reported that its Manufacturing Purchasing Managers’ Index reached 51 points in May, which was worse than investors had foreseen. The US dollar, traditionally considered a haven in hard times, maybe brought higher by general worries about the recovery of the global economy.