Euro strength a conundrum – IIF

According to Robin Brooks, Chief Economist at the Institute of International Finance (IIF), EUR/USD's recent strength is a conundrum, as the pair has held strong despite treasury yields rising in a dollar-positive manner and markets expecting additional European Central Bank (ECB) stimulus in December.  

"The ECB on Oct. 29 pre-announced more stimulus for Dec. 10. And US interest rates are rising, which should pull down EUR/USD. But EUR/USD is flat since Oct. 29, unlike 2015 when it had fallen by over 4% after the ECB pre-announcement in Oct," Brooks tweeted on Wednesday. 

The currency pair is currently trading at 1.1783, up over 100 pips from the low of 1.1640 observed at the end of October. 

The U.S. 10-year treasury yield almost tested the 1% mark on Wednesday on hopes for coronavirus vaccine. At press time, the yield is trading at 0.95%, representing a 14 basis points gain on the week. So far, the hardening of the benchmark yield has failed to translate into broad-based dollar strength.