EUR/USD struggles following third wave of eurozone infections

Euro (EUR) sentiment has been fading following a third wave of coronavirus infections across EU member states. The sudden spread of cases is being attributed to new strains of the virus, which are said to be significantly more contagious.

The rise of EU COVID-19 cases will see countries impose new restrictions and measures in a bid to curb the spread of infection once again. Italy has become most affected by the third wave of infections, with 27,000 new cases and 380 deaths recorded last Friday. As a result, Italy will enter full lockdown with citizens only permitted to leave their house for essential purposes.

France’s health minister, Olivier Véran, revealed his concern over mounting cases within Paris, noting that ‘every 12 minutes night and day, a Parisian is admitted to an intensive care bed.’ Whilst France’s President Emmanuel Macron has already introduced curfews in most regions, medical professionals are now urging him to call for full lockdown imminently.

Germany reported 12,674 new cases last Saturday, whilst Poland experienced 17,260 new cases last Wednesday, which is the highest daily figure since last November. Hungary and the Czech Republic are also seeing a rise in infection levels, as it’s thought that new restrictions will be announced for each of these countries over the coming days.

US dollars, euros and pound Sterling

EUR/USD exchange rate struggling to advance

At the time of writing, the euro to US dollar (EUR/USD) exchange rate is trading flat at USD 1.18, as coronavirus once again takes its toll across Europe, dampening sentiment in the euro (EUR).

The coronavirus infection rate in the bloc’s largest economy, Germany, remains a concern and is denting recovery hopes. The German Government has predicted that Germany’s economy will contract by 2% within Q1, having also reduced 2021 growth figures from 3.7% to 3.1%. The consensus is that 2021 will be the ‘crisis’ year, with expectations that the economy will grow by 4% in 2022.

The European economy has also come under pressure as a number of states have suspended use of the Oxford-AstraZeneca vaccine over suspicions that it could be responsible for causing blood clots. The suspension has caused further delay in the deployment of vaccines across the EU, who already were slow to begin the rollout of vaccines in comparison to the UK. As a result, the EU remains even further behind the target of reaching herd immunity, with potential lockdown restrictions stunting growth for Q2.

Investigations are currently being undertaken in relation to the AstraZeneca vaccine, with findings due to be revealed on Thursday. Veronika Grimm, a German Council member, noted the importance of the AstraZeneca vaccine within Germany’s recovery process, given that the country has already been slow to deploy coronavirus vaccines.

Germany has stated that they aim to vaccinate 70% of adults by the end of September 2021 and it seems that they will struggle to stay on target if further delays continue. Councillor Grimm noted that Germany would need to increase daily vaccinations by 50% if the country wishes to stay on target.

The Oxford-AstraZeneca vaccine would allow the country to achieve this aim as it is easier to transport than the Pfizer vaccine, given that it can be stored under normal temperatures.

Is the US dollar losing its place as a reserve currency?

Last year saw the number of international payments made in US dollars (USD) decreased, while the euro’s (EUR) share increased for the first time since 2013.

Figures revealed that the greenback remained the primary currency for international transactions, with 41.7% of all cross-border payments and global debt securities made in US dollars (USD), compared to the euro’s (EUR) 38.5%. However, data also revealed that interest in the euro (EUR) as a reserve currency was growing.

According to a Bloomberg index, which measures the currency against a basket of its peers, the US dollar (USD) has depreciated by more than 11% since the pandemic started and some observers forecast further declines.

Recent reports suggested that Bitcoin could replace the US dollar (USD) as the world’s leading currency, though the Federal Reserve has criticised these claims. Though cryptocurrencies have become popular over the years, St. Louis Federal Reserve President James Bullard stated that “it’s going to be a dollar economy as far as the eye can see whether the gold price goes up or down, or the bitcoin price goes up or down, doesn’t really affect that.”

Bullard also noted that the US dollar (USD) can already be traded electronically and slammed statements that cryptocurrencies could be a threat to the US dollar (USD). He also noted that whilst both the euro (EUR) and Japanese yen (JPY) are strong currencies, they would also not pose a threat to the US dollar’s (USD) safe haven status.

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