The gradual improvement in economic optimism in the Eurozone and a potential slowdown in interest rate increases by the US Federal Reserve (Fed) have both contributed to an increase in the euro's (EUR) value relative to the US dollar's (USD) during the last month. These factors have also lowered the greenback's appeal as a safe haven.
Let's evaluate whether now is a good time to buy EUR/USD.
EUR/USD price
On December 13, the EUR/USD pair draws new purchasing and sustains its small intraday gains into the early European session. As per the estimations of the US Consumer Price Index for November, the EUR/USD pair holds its level of around 1.0566.
However, while traders wait for this week's macroeconomic data and central bank meetings, spot prices remain constrained in a similar range that they have occupied for the previous one and a half weeks.
Despite recent increases, the EUR/USD currency pair has lost 7.2% of its value this year.
The Drivers of EUR/USD
US Federal Reserve interest rate
The newest US consumer inflation data will be revealed on December 13. The market players will react to it.
In addition, policymakers noted that because supply and demand imbalances in the US economy continued and US inflation showed no evidence of slowing down, a higher federal funds rate was eventually required to meet the FOMC's objectives.
However, despite statements to the contrary from various officials, investors continue to speculate that the Fed will push interest rates up by only 50 basis points next month.
Moreover, before the highly anticipated FOMC monetary policy statement on December 14, the significant US CPI report will be noticeable. Because, it will influence the US Dollar demand and give the EUR/USD pair some momentum.
The Hawkish policy of the ECB
The European Central Bank (ECB) has become more hawkish because of rising inflation. The ECB took the extraordinary action of promising to surge interest rates in July and September during a meeting in June.
The European Central Bank meeting on December 15 should decide the major's next phase of a directional advance.
The ECB may slow down the strengthening process and issue a 50 bps increase after two 75 bps movements. However, officials may surprise investors. The European CPI is still increasing and shows no signs of slowing down. The ECB's lowering chances of another massive 75 bps rate rise will help to limit EUR/USD gains.
China reduces COVID-19 rules
The relaxation of COVID-19 restrictions in China continues to promote a highly favourable risk attitude. Therefore, the safe-haven dollar is considered to be weaker, and the EUR/USD pair is perceived as receiving support. However, concerns about a worsening global economic crisis might limit confidence.
Is it a good time to buy EUR/USD now?
In recent weeks, the EUR/USD pair has increased as the euro continues to gain from a lower dollar. Also from the declining US Treasury rates. Despite aggressive comments from various officials, investors bet that the Fed will keep continue to raise interest rates by only 50 basis points.
Many economists believe that the EUR/USD exchange rate might decline even lower. It is because the gap between US and European economic development is increasing. However, your portfolio's structure, investment objectives, and risk profile, among other things, will decide whether or not EUR/USD is a good investment for you.