The euro tests 1.10 as the policy divergence narrows from the wrong side
The pair has spent four months in a two-cent range. What breaks it is a change in relative expectations, not absolute ones.
The euro traded above 1.10 against the dollar for the first time in seven weeks, at the top of the range that has contained it since early in the year.
The move came from the dollar side. European data has been unremarkable, and the repricing has been of the Federal Reserve path rather than of the European Central Bank path.
Why the differential matters more than the level
A currency pair is a relative price. What drives it is not whether one central bank is easing but whether it is easing faster or slower than the other, relative to what is already priced.
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