Euro Faces Downside Risk as Yield Gap Widens vs Dollar – MUFG

According to MUFG analyst Lee Hardman, EUR/USD has broken below its long-held 1.1400–1.1800 trading range. The divergence in monetary policy expectations between the European Central Bank and the Federal Reserve is exerting downward pressure on the euro.

Softer economic data from the euro zone, combined with easing energy prices, are reducing the urgency for the ECB to continue hiking interest rates. Meanwhile, market pricing suggests the Fed is expected to deliver multiple rate increases, widening the yield gap in favor of the dollar.