Euro set for biggest monthly drop since mid-2019 on economy fear

The euro languished below $1.18 on Monday as the prospect of tougher coronavirus curbs in France and Germany weighed on the short-term outlook for the European economy.

The common currency is headed for its biggest monthly drop since mid-2019 as Europe’s faltering vaccination programme runs into a wave of new infections even as positioning data showed investors remain heavily long euros. and

The euro was down 0.1% in early London trading at $1.1774, not far above last week’s four-and-a-half-month trough of $1.1762. On a monthly basis, it is down 2.3%, its biggest fall since July 2019.

Compounding the single’s currency woes has been the widening interest rate differentials between German and U.S. yields with the spread between 10-year debt widening to 200 bps from 150 bps at the start of the year, boosting the greenback.

“Much focus will remain on the virus situation in Europe and whether lockdowns can slow rising case numbers and also whether the slow pace of vaccinations can finally reach exit speed,” ING economists said in a daily note.

via Reuters