Euro remains under pressure as Covid cases rise

The euro remained under pressure on Monday as Covid cases continued to surge across the continent.

As at 1145 GMT, the single currency was trading at 0.8395 against sterling and 1.1281 against the US dollar.

Covid cases are rising once again in Europe, and restrictions are being re-introduced. Austria announced a lockdown for unvaccinated people last week before widening it to a full national lockdown, starting on Monday and lasting a maximum of 20 days. Restrictions have also been introduced in the Netherlands and Belgium.

Joshua Mahony, senior market analyst at IG, said: “European markets have kicked off the week on a surprisingly positive footing, with the fears around a fresh bout of Covid restrictions serving to damage the euro more than stocks.

“Weekend protests turned violent in Europe, with Austria imposing a full lockdown and Belgium requiring people to work from home four days a week.

“Rising cases in Germany threaten to restrict economic activity in Europe’s largest economy, with their tourism commissioner warning that compulsory vaccinations appear unavailable.”

Hussein Sayed, chief market strategist at Exinity Group, said: “The single currency is struggling to find support, having fallen more than 7.5% so far in 2021. The euro is now the second-worst performing currency after the Japanese yen, and the fourth wave of Covid-19 infections is adding to its losses.

“Business activity on the continent is already suffering from supply chain disruptions and high costs, and adding further Covid-19 restrictions will only exacerbate these issues. The upcoming purchasing managers’ index survey, released on Tuesday, is expected to paint a gloomy picture of Europe’s economy.”

The euro is also being hit by growing expectations that, unlike other central banks, the European Central Bank will not raise interest rates imminently.

Rate setters in both the US and UK are expected to boost the cost of borrowing sooner than initially expected, as they look to control surging inflation. However, on Friday, ECB president Christine Lagarde said the bank was “very unlikely” to raise interest rates next year as the outlook for inflation over the medium term remained “subdued”, sending the euro to a 16-month low against the dollar.