Blog > February 2017 > Expect the EURO to go lower...

Expect the EURO to go lower...

3 Reasons Why the Euro May Go Lower...

  • High political (election) risks
  • Low Euro interest rates and dovish ECB
  • Stronger US economy after Trump's tax cut (expected)

At surface level, outlook for the Euro seems to be decidedly more complicated than most of its G10 counterparts.

Political risk abounds. Populist forces look uncharacteristically strong ahead of key elections in Germany, France and the Netherlands. Italy may yet see an early election against a similar backdrop.

Meanwhile, the start of Brexit negotiations looms ever closer. 

Finally, there is the dramatic shift in the tone of US policy with the ascension of President Donald Trump.

The new administration has expressed its displeasure with what it sees as an unfairly weak Euro and clashed with ECB President Mario Draghi about post-crisis banking regulation.

All that political uncertainty means the ECB is unlikely to change its dovish tune any time soon.

Meanwhile, it seems clear that the Fed is aiming to raise rates, even if the extent of on-coming tightening is clouded amid lingering fiscal policy uncertainty.

Semi-annual Congressional testimony from Fed Chair Janet Yellen may be a more potent catalyst. The Euro may get a lift if a cautious tone trims March rate hike bets. Follow-through may be limited however considering the priced-in probability of an increase is relatively modest at 28 percent.

On balance, an ultimate failure to dislodge the big-picture status quo is likely to bode ill for the single currency. Short-term price swings aside, there seems to be relatively little on offer in the days ahead that has real potential to divert the underlying, yields-based trend.

Expect the Euro to go lower in the coming weeks.

John Min

Posted: 2/13/2017 8:21:48 AM by johnmin | with 0 comments
Filed under: Dollar, Euro, exchange, forecast, foreign, fx, USD, currency

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