Euro rises cautiously amid a bearish outlook

Euro rose mildly in European trade on Monday against a basket of major rivals, extending recovery for a second day away from a week trough against the dollar, even as the euro continues to face a bearish outlook due to expectations of early interest rate cuts by the ECB.

Conversely, the odds of an early US interest rate cut by the Federal Reserve in June declines. 

EUR/USD

EUR/USD rose 0.1% to 1.0897, with a session-low at 1.0880, after rising 0.1% on Friday, after plumbing a one-week trough at 1.0873. 

Euro lost 0.4% against the dollar last week, the first weekly loss in a month on renewed concerns about the US-Europe widening interest rate gap. 

Bearish Outlook

The SEB banking group said in a research memo that the time is prime for the EUR/USD pair to decline in upcoming weeks.

The group’s analysts are pointing to the conditions supporting an earlier interest rate cut in Europe compared to the US as a basis for their prediction. 

The analysts believe that a breach of the recent range will underpin the dollar throughout the spring, with the group now expecting the EUR/USD to hit 1.07 in about a month before rebounding back to 1.10 in the fourth quarter.  

As the Federal Reserve prepares to launch its own policy easing, likely from June, it’s expected that the euro will gain momentum on the dollar and recoup all of its recent losses.