The events in Greece and to a lesser extent, shifting expectations of US monetary policy has dominated EUR/USD over the past month by the tumultuous. Over much of this period, it has been caught in a range around 1.11, with downside pressure on the euro from the Greek crisis broadly offset by downside pressure on the US dollar from a scaling back in US interest rate expectations.
However, news of a tentative deal between Greece and its creditors has seen the single currency break lower, below 1.10.
According to Llyod's bank, the drop has occurred amid
(i) Scepticism over whether a Greek deal can be finalised;
(ii) Renewed speculation of a possible rise in US interest rates this year; and
(iii) The euro's status as a funding currency (investors have naturally sought to borrow cheap euros to purchase foreign currency assets).
"Looking ahead, a resolution to the Greek crisis coupled with a steady recovery in euro area economy should see EUR/USD move higher over the longer term. For now, however, ongoing event risk in Greece, the probability of a US rate rise in H2 and the ECB's QE are projected to push the euro lower. A drop of 1.03 is expected by end Q3", says Lloyds Bank.
