Euro trade below $1.09 on economic and political uncertainties

The EUR/USD pair fell as low as $1.0850 on Monday, posting its lowest level since early April as the market sentiment remains fragile on economic and political uncertainties, coupled with the concerns over China’s outlook.

The risks of global recession and the worries over the U.S gov’t debt-ceiling talks gave a boost to the safe-haven greenback against the risk-sensitive euro, which has retreated from early-May one-year highs of $1.11 mark to the current lows of $1.0850.

EUR/USD pair, Daily chart

The risk sentiment has also deteriorated by the weaker-than-expected macroeconomic data from the key trading partner China, weighing on export-oriented economies like Euro Zone and adding pressure on its currency.

Adding weakness to the euro, Chinese industrial output, retail sales, imports, and inflation all shrank in April, indicating that a post-pandemic rebound was running out of steam.

As a result, the DXY-U.S. dollar index which tracks the greenback against a basket of six major peers - the euro has the greatest weight in the dollar index- bounced off a yearly low of 101 towards the five-week high of 102.50.

Positive EU fundamentals:

The market has dismissed some positive data about Eurozone, where the European Commission upwardly revised its quarterly projections for Eurozone’s economic growth and inflation for 2023 to 1.1% and 5.8% versus 0.9% and 5.6% expected in February.

Hence, the European Central Bank (ECB) also released its monthly Economic Bulletin offering details on the economic, financial, and monetary developments in the Euro area while saying, “Most of the impact on inflation is expected from 2023 onward.” The ECB Bulletin also said that the transmission of rate hikes to economic activity is faster.