Why the Euro’s Gap with the US Dollar Is Widening

Euro unable to outrun the US dollar

The euro-US dollar (FXE) exchange rate closed at 1.19 on May 7, with the euro depreciating 1.4% against the dollar (UUP) in May following a 2.0% decline in April. The resurgence of the US dollar, backed by rising US bond yields and continued economic expansion, led to decreased demand for the euro. The European Central Bank’s dovish stance at its recent meeting and weak economic data pressured the euro further.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), continued their positive streak for a seventh consecutive week. In the week ended May 4, the German DAX (DAX) rose 1.9%, the Euro Stoxx (FEZ) rose 0.90%, and France’s CAC rose 0.60%.

Why the Euro’s Gap with the US Dollar Is Widening

Euro speculative bets continue to decline

According to the Commodity Futures Trading Commission’s May 1 Commitments of Traders report, speculators have decreased their bullish positions on the euro (EUFX) by 10,026 contracts, from 130,594 to 120,568.

The outlook for the euro

There are few chances for the euro to bounce back this week, especially after the surprise decline in German factory orders and lower-than-expected export growth in April. The continued strength of the US dollar is expected to limit any strong gains in the euro. Whereas European Central Bank president Mario Draghi is scheduled to speak on Friday, he is unlikely to present any changes. In the next part of this series, we’ll discuss why the Bank of England could hold off on a rate hike at its May meeting.