What’s Driving EURO Strength?

Do you know why the EURO is rising? It’s not just because the US dollar is weakening—there’s more to the story.

Last week, the euro was the strongest currency, second only to the Japanese yen, which surged due to Japan’s new positive interest rate policies. But should we enter a long position on the euro-dollar pair? That’s exactly what we’ll explore tonight.

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Yesterday, we received key economic data: the European CPI for January. This measures inflation from January last year to January this year. Previously, inflation was at 2.4%, and this time, it came in at 2.5%—right in line with expectations. This suggests the European Central Bank (ECB) is successfully managing inflation, reinforcing confidence in the euro.

Even though rate cuts typically weaken a currency, in this case, the ECB’s controlled inflation and strong labor market are maintaining investor confidence. This is why investors are buying euros and selling US dollars. Compare this to the Fed’s actions—when they make statements, the opposite often happens, leading to dollar weakness.

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