Positive euro momentum received a boost from the latest European Central Bank (ECB) meeting and many analysts remain upbeat about the outlook for the currency. However, there are some scenarios where this year’s gain so far, could come to halt, or even reverse.
ECB president Mario Draghi barely veiled his view that the euro is too strong for the longer-term health of the economy and upcoming announcements, regarding the tapering of the central bank’s long-running Quantitative Easing program. However, his plans will still go ahead with details expected in the October ECB meeting.
The Only Way is Up?
Given the low interest rate backdrop, weakening of the dollar and out-of-favor British pound, the euro is a currency that will likely remain bid for some time. Investors like the environment and know it’s supported by the central bank and core Euro-Zone members.
For start-ups seeking new finance, or those ready to grow to the next level, right now is a good time to secure business finance across most countries. For forex investors, meanwhile, keeping the euro well bid is a strategy that will only work well for so long – but that’s not news to them. The recent meeting suggested the ECB’s key interest rates will eventually begin to rise from the current 0% level. However, dip-buying of the euro is expected to remain a feature of the markets, according to Nomura forex analysts. While that suggests some euro weakness will be apparent, it will likely be in short-lived bursts.
What Goes Up Must Come Down
Other views, meanwhile, are that the current euro strength won’t last. According to Julius Baer, the current bout of euro strength will end in around three-months’ time, when still low interest rates and yields will encourage investors to sell in favor of other currencies.
But, even if this scenario does play out, it will have given the euro a solid period of gains which investors can benefit from – provided they get the timing of their future moves just right.
Another element that will affect the euro’s further anticipated climb, is more clarity on the US economic outlook. Right now, it’s not clear and the devastation hurricanes are wreaking on the country and the ongoing Korea situation, are additional bumps in the road. However, right now, the positive outlook for the Euro-Zone and uncertainty around the US economy is a clear driving force behind a stronger euro. How long that dynamic will last, is a key concern for investors.
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