The Euro Continues to Weaken
The Bundesbank's monthly report said that the German economy is likely to contract at a high rate in the first quarter of the year due to the limitations of the coronavirus. Measures to contain the pandemic in the current quarter, on average, are more stringent than in the previous one. Consequently, economic growth will decline sharply during this period, especially in the service sector.
The head of the European Central Bank, Christine Lagarde, noted that uncertainty about the inflation outlook and the short-term economic outlook remains high. There is a risk that the revision of the yield rates on long-term bonds may be incompatible with compensating for the negative shock to the region's economy. The ECB is ready to adjust all instruments, if necessary,to ensure a steady movement of inflation towards the target.
Citibank comments on the short-term outlook for the euro/dollar pair and notes that the risks remain biased towards the downside. The Fed's soft stance, shift to value stocks, and favorable developments on the political and fiscal front will support demand for the single currency, while lagging global yield growth, slow vaccination progress, and new lock-in measures point to euro weakness. The bank predicts a drop in quotations in the medium term in the area of 1.1700.