Cyprus Mail
Banking and FinanceBusiness

Why is the euro going to stay strong (and hit $1.16)?

Euro Block

You might well ask the question.

As one country after another goes into lockdown (or a ‘mini-lockdown’ like we have here in Cyprus), as economic sentiment is at a new low across Europe, what’s driving the euro higher and higher against other major currencies.

Here is what Japanese investment bank Nomura had to say about it on Friday:

“The euro could strengthen to $1.16 throughout 2020 thanks to an economic recovery in Europe, lower political risks, and no significant policy change from the European Central Bank,” currency strategists at Nomura bank said in a research note.

What’s more, Nomura thinks that the euro will stay strong throughout the year:

“We remain constructive on the euro into 2020, as a cyclical upturn should keep the single currency supported,” the analysts added.

Essentially, the euro has decoupled from the European economy, at least in terms of its value on the forex market.

Certainly, the departure of Trump from the scene means that world trade is expected to stabilise. But analysts say that we are a long way from restoring world trade to where it should be; meanwhile, the European economy is just edging into recovery. Consider that, between 2008 and 2018, total euro area trade with non-EU countries increased at an annual average rate of 3 per cent, according to Eurostat data.

Nonetheless, the euro gradually increases in value against the dollar and the pound, and the reason is because the dollar and the pound are weaker, not so much because the euro is stronger.

The dollar is expected to stay weak for some time. The Federal Reserve has made it clear that interest rates will stay close to near-zero for the near future. And the Fed is injecting liquidity into the economy with its bond purchase programme – very necessary at a time when the economy is weak, but a factor that keeps the dollar down.

Then Biden is expected to be a spender: He has plans for a comprehensive stimulus programme and a massive green energy spend as well. All of this will combine to push the dollar lower.

And what of the British pound?

Then, the British economy is bedevilled by rising unemployment, Covid-19 woes  and the Brexit mess on top of everything. The pound is expected by nearly all analysts to lose value gradually throughout the year.

All of which leaves the euro as probably the best value for 2020.

 

Related Posts

German road traffic agency says 59,000 Tesla vehicles have software glitch

Gnox (GNOX) makes A 60% price surge during bear market, honorable mentions: Tron (TRX), and Bitcoin Cash (BCH)

CM Guest Columnist

Buckle Up: How investors can deal with crypto turbulence

Reuters News Service

Ferrari to churn out gas guzzlers on its slow road to electric

Reuters News Service

1970s-style stagflation now playing on central bankers’ minds

The Conversation

Jacobi Asset Management to launch Europe’s first bitcoin ETF on Euronext

Reuters News Service