EURUSD Remains in Doldrums as Germany Battles Inflation

The Euro currency passed a significant milestone as the new year rolled in, marking 25 years since its introduction.

Its traction was immediate back in the late 1990s when countries rallied to be part of an exciting new era of European unification via a single monetary unit across a suddenly borderless market, and now, a quarter of a century on, approximately 350 million people use the Euro as their everyday currency, making its daily circulation similar to that of the US Dollar which is the official currency in the mainland United States, its overseas territories and 11 other countries globally.

Given that the Euro and US Dollar represent the most dominant currencies in the Western world, it is of interest when a particular pattern emerges relating to their value when traded as a major pair.

As soon as December rolled into January, the Euro fell dramatically in value compared to the US Dollar, with the EURUSD pair trading around 1.1050 during the late afternoon on January 1, and sliding to 1.09 by the same time on January 3 at FXOpen.

Over the past year and a half, during the seemingly continual concerns from market participants, central banks and members of the public alike, the Eurozone has been less affected by continued interest rate increases compared to Britain and the United States; however, there is a very important consideration when it comes to the Euro which is not a factor in the US Dollar or British Pound's remit, that being the difference in economic dynamics, demographics and national characteristics which the Euro is subject to as the 20 countries which use it are all very different in their makeup compared to the US and Britain being single nations.

There is a consensus that concern over the rising inflation in Germany may be one possible cause of the flagging value of the Euro compared to the US Dollar as Germany is a key economic region within the Eurozone. Therefore, any major events within its own national economy could be a factor in influencing the overall value of the Euro.

Figures released at the end of 2023, about the time when the Euro began its drop in value against the US Dollar, it became apparent that inflation in Germany had risen to 3.7% in December, an increase from 3.2% in November.

To add further weight to this, at around the same time that the markets opened for the first time this year, many analysts began to consider the possibility that the US Dollar could be about to experience its biggest daily jump on January 2 since October last year, something that the chart patterns that have occurred since that notion was made public three days ago have certainly depicted to a large extent.

A contributor to the buoyancy of the US Dollar has been the increase in yields. For example, within US Treasuries, benchmark 10-year notes showed an increase of 7.7 basis points at 3.937% on January 2, representing the largest daily increase in almost a month.

Regarding the possible reaction to the inflation increase experienced in Germany, it appears that the European Central Bank has not reacted by touting another interest rate rise, and it looks to be possible that interest will remain unchanged across the Eurozone until June or July, when the European Central Bank may even make a reduction alongside other Western central banks which in some cases plan to begin reductions in the Spring of this year.

Thus, the Euro's performance is one to watch during this period of interesting volatility.

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