The Euro has seen a modest strengthening against the US Dollar as the new week begins. Analysts at MUFG Bank examine the outlook for the EUR/USD pair.

What Factors are Boosting the Euro?

Several favorable developments are providing support for the Euro. Firstly, there’s a shift in expectations regarding the timing of the first rate cut by the European Central Bank (ECB). It’s now anticipated that the ECB will delay the rate cut until June rather than April. Additionally, the total projected rate cuts for the year-end have decreased, helping to alleviate downward pressure on the Euro in the short term.

Secondly, positive signs are emerging regarding the growth outlook in the Eurozone. The declining price of natural gas in Europe is contributing to a more optimistic view, suggesting that the negative impact on the Eurozone economy will diminish in the coming months. This supports expectations for improved growth in the second half of the year as inflation gradually returns to the ECB’s target. Moreover, there is growing optimism surrounding the global inventory cycle, indicating a potential uptick in global trade ahead, which would further benefit the Eurozone economy.

Lastly, recent stimulus measures in China have helped alleviate investor concerns about the country’s economy. This reduction in pessimism is also easing selling pressure on the Euro in the near term. The upcoming National People’s Congress in March could serve as a positive catalyst if additional stimulus measures are announced.

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