Euro declines to five-week trough amid thin trading

Euro Decline Amid Holiday Thin Trading

Euro declined in European trade on Friday against a basket of major rivals, sharpening losses for the fourth straight session against the dollar and plumbing five-week lows amid thin trading due to the Good Friday holiday.

Euro Heading for Quarterly Loss

Euro is heading for a quarterly loss, the second in the three quarters due to concerns about the widening policy gap between Europe and the US.

EUR/USD

• EUR/USD fell 0.2% to 1.0769, the lowest since February 20, after losing 0.4% on Thursday, the third loss in a row following positive US data.

Bearish Remarks

• Latvian Central Bank Governor Mārtiņš Kazāks said that inflation has fallen, with June now becoming a prime time to start cutting borrowing costs.
• Italian Central Bank Governor and ECB member Fabio Benita said that the ECB is heading for interest rate cuts as inflation quickly approaches the 2% target.
• ECB Chief Economist Philip Lane said the ECB is increasingly confident that European wage growth is slowing down to normal levels, opening the door for interest rate cuts.

European Rates

Such remarks boosted the odds of a June interest rate cut by the ECB, with investors now expecting 90 basis points of total interest rate cuts by the ECB this year.

Strong US Data

• Earlier US data showed GDP growth beat expectations in the fourth quarter of last year, while unemployment claims fell, as pending home sales rose in February.

US Data

Following the excellent data, the odds of a 0.25% Fed interest rate cut fell from 63% to 59%.

Quarterly Trades

The EUR/USD pair is down 2.5% so far this quarter, on tracking for the second quarterly loss in three quarters.

Interest Rate Gap

The eurozone-US interest rate gap currently stands at 100 basis points in favor of the US, however it could increase to 125 basis points in June if the ECB went ahead with cutting rates and the Fed held its ground, which would put the euro in a weak position.