It was not surprising that the euro skyrocketed. According to experts, investors were very optimistic about the euro. As a result, the currency rose sharply even despite the inflation slowdown.
Analysts say that weak inflation data could become an obstacle to further economic growth in the EU. It is a warning sign for the ECB. The eurozone inflation report was released on March 3. The inflation data was much weaker than forecast. As a result, the euro fell. The total inflation in the eurozone slowed to 1.2% in February 2020 from 1.4% in January.
Experts did not pay too much attention to the report. However, some economists expected that inflation would remain steady. Experts anticipated that the ECB would take some effective measures to boost economic growth, including expansion of the bond-buying program and reduction of negative deposit rates at the meeting in March. Overall, the current situation did not contribute to the rise of the euro. However, at a certain point the currency skyrocketed.
According to experts estimates, the unexpected euro growth was driven by the immediate closure of carry-trade transactions financed by the euro. Many investors closed their deals and took profit. It is expected that minor differences between European and American interest rates can become a major factor in the strengthening of the euro.
The carry-trade transactions were closed amid the spread of the COVID-19. There was another reason for investors to close their deals which also contributed to the rise of the euro. A number of investors had their Shorts in the euro. As a result, the EUR/USD pair reached the levels of 1.1115–1.1116 after it rebounded by 3% from the three-year low recorded at the end of February 2020.
On Tuesday, the euro skyrocketed to the levels of 1.1171–1.1172. After that, sharp growth was replaced by a moderate increase and the EUR/USD pair continued rising further.
On March 4, the price fell. At the moment, the EUR/USD pair consolidates near the levels of 1.1154–1.1155 and is trying to get back to the previous highs.
According to analysts, the euro is expected to maintain its positions. It is not easy as inflation in the eurozone is weak and the coronavirus in the EU, particularly Italy, is spreading rapidly.
The coronavirus situation is very complicated. The G7 governments decided to join forces in the fight against COVID-19 in order to maintain the current global economic growth rate. Economists believe that the global slowdown is inevitable. However, timely measures taken by governments and central banks can mitigate the negative effects of the coronavirus epidemic. If the recession takes place only in the first two quarters of 2020 and the threat of the coronavirus spread gradually reduces, it is possible that the global economy can recover in the second half of the year. In case of this scenario, the euro is likely to continue rising.
