Why was the euro pushed higher against the US dollar today?

BMO Capital Markets analyst Stephen Gallo gives his views on today's trade in the euro dollar exchange rate.

Before we hear from Stephen we take a quick peek at the latest spot rate. The euro dollar exchange rate is currently 0.23 pct in the blue at 1.2812.

(Note: This is a spot market rate, your bank will affix their own discretionary spread. An independent FX provider will guarantee to shave between 2-5% of that spread, thus delivering you more currency. Please find out more here.)

Why is the euro higher against the US dollar?

Stephen Gallo at BMO Capital Markets says:

"We suspect EUR/USD was this morning driven modestly higher from the 1.2770 area as a result of at least a couple of factors. In particular, the failure of the US-German 2-year sovereign spread to sustain itself above 30bps (highest since last December) and its subsequent move into narrower levels in against the USD probably helped to a degree.  

"This confirms that EUR/USD, as mentioned in previous Dailies, continues to partially be an important play on US rates, thus making the EUR cross rates a better way this week to express a negative stance on Europe overall (EUR/JPY, EUR/KRW, EUR/ZAR, EUR/AUD and EUR/NZD are all within the top 5 worst performing EUR crosses since Monday, whilst EUR/USD doesn’t even make it into the top 10).

"Secondly, the inability of EUR/USD to test yesterday’s post-Italian downgrade lows probably sparked some position squaring within the leveraged money area, given that a lot of the Italian news flow this morning appears to have, in part, inspired Standard & Poor’s to cut Italy’s sovereign rating by another notch, leaving EUR/USD levels in the 1.2750 area already a decent reflection of the general picture for the country.

"Admittedly though, without la st week’s ECB decision and constant jawboning from ECB officials, we suspect EUR/USD would already be materially lower than 1.2750 at the start of Q3 in light of recent developments and continued tensions related to the start of Fed QE tapering.  

"However, notwithstanding these rather noisy intraday fluctuations in EUR/USD, we need to stress that tensions are showing up in a number of euro area indicators and so maintaining modest downward pressure on the EUR cross rates throughout the morning."