Factors that have been supporting the euro’s strength are dissipating. The Fed expects to end its bond purchasing program in October, writes Richard Barley for Wall Street Journal. Meanwhile, the ECB has launched its first new long-term loan to banks in September and is set to issue another loan in December.
Moreover, the Treasuries market are also pricing in the divergence, with the spread on two-year German bunds and U.S. Treasury yields rising to around 0.45 percentage points in June and July after hovering around 0.2 and 0.3 points in the first few months of the year. Additionally, as U.S. inflation rises, the gap could expand and put more pressure on the euro currency.
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Max Chen contributed to this article.