The resurgence of the pandemic in Europe weighs on the euro

The EUR/USD exchange rate hit a new low on Friday at 1.1250 and could weaken further. The announcement of a strict lockdown in Austria sent eurozone bond yields plunging, fueling fears of a further severe economic slowdown. Among the larger countries in the zone, the highest risks are in Germany, where vaccination rates are lower and hospitals are facing staff shortages. Elsewhere, the situation appears manageable, without major economic damage, if the vaccination campaign, especially for a 3rd booster dose, continues.

The euro also weakened against the dollar due to hawkish statements by several Fed members (including the Vice Chairman) suggesting that the Fed may decide to accelerate the pace of its asset purchases and thus put itself in a position to raise its policy rate more quickly. The pound also strengthened against the euro (EUR/GBP<0.84) after the rebound in UK retail sales.

Very light economic calendar today. Almost all of the week’s market movers will be concentrated tomorrow and Wednesday, before Thanksgiving in the US.