The research team at Amplifying Global FX Capital explains that it is evident that rate spreads are not a significant driver of the EUR in recent years and the yield spread has moved somewhat in favour of the EUR in recent weeks as US rates have ebbed, but, overall, the 2yr yield spread has remained relatively stable this year, whereas the EUR has recovered to its high since November.
“The EUR has now essentially unwound the Trump rally in the USD that follows his election on 8 November.”
“Relatively low and negative EUR yields may help slow the rally in the EUR, but the market is responding to economic growth and equity flows. The market can see the end of the ECB’s extraordinary monetary policy in view. QE tapering is widely expected beyond the current QE policy set to expire in December.”