Euro Rallies on Weaker US Data, But Analysts See Soft Dollar as Main Driver

The Euro-to-Dollar exchange rate has been on an upward trend, reaching levels not seen since mid-June. Analysts at Rabobank have brought forward their forecast of a move to 1.16 from six months to three months, citing the unexpectedly weak US July payrolls report as the decisive catalyst.

The softer data dealt a blow to expectations of Fed rate hikes, which knocked US yields and the greenback lower. This has given the Euro room to edge higher, but Rabobank is careful not to read the latest rise as evidence of broad Euro strength.

Rabobank notes that the Euro has sat around the middle of the G10 pack over the past week and remains the third-worst performer over both the year-to-date and half-year periods. The bank expects the Federal Reserve to leave rates unchanged this year, a view which 'suggests scope for further softness in the USD'.