What will happen to the euro? Euro exchange rate forecast

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Many do not cease to wonder what will happen to the euro in the near future. The unstable economic situation in the world makes people look for ways to save their savings, and conversion into foreign currency is considered as one of the possible directions. We focus on the fact that today experts are in no hurry to make forecasts, since most of them turned out to be wrong in the last six months.

Strengthening of the dollar against the euro

In March 2015, most analysts were talking about the strengthening of the dollar against the euro. There were forecasts that by 2017 the American currency will be completely equal to the European one. Despite the pullback that could be observed throughout April, the situation has not yet stabilized. It is still too early to say that the negative dynamics of the euro has finally changed.

The beginning of May was marked for the European currency by trading at the level of 1, 1. Such world agencies as Goldman Sachs, Barclays and BNP Paribas stated that the "European" will reach this price mark only by the end of 2015. A more optimistic forecast was given by representatives of Wells Fargo, emphasizingattention at level 1, 22. We can talk about a dual scenario. Two directions are being considered: a fall to a 2-year low and an increase to a figure of 1, 22.

European economy

In the first half of 2015, experts expect GDP growth at the level of 1-2%. For Europe, this figure can be considered more than positive. The expected macroeconomic indicators set up a positive forecast for the euro. This is an unemployment rate of around 9.5%, which relatively recently was estimated only in double digits, as well as inflation at the level of 1%.

The fall of the European currency against the dollar experts associate with more active development of the American economy over the past two years. Despite the expected growth of the euro in the next couple of years, today the rate is constrained by many factors. We can say about the reduction of industrial production in Germany and in many other large countries. The problem is hidden in the uneven development of the EU states. The northern regions are only recovering today after a long stagnation.

Falling euro as a result of Mario Draghi's speech

Mario Draghi in his last spring speeches has repeatedly said that he intends to take all measures to reduce public debt. This cannot but affect the euro exchange rate. Representatives of the Morgan Stanley agency say that the negative trend will be supported by the relative openness of the European trading area, as well as the presence of a deflationarypressure. An outflow of portfolio-type investments was recorded, where the euro plays the role of the funding currency.

EU connection with Russia

It is worth noting the fact that the EU has a certain dependence on gas, which is imported from Russia, as well as on the import of its goods into the territory of the Russian Federation. The volumes of both gas and imports are declining today due to sanctions that leave a negative imprint on the EU states. Despite the current trend, the euro rate, according to the forecasts of world analysts, will not grow for a long time. Investors no longer hope for the strengthening of the European currency. As experts say: "the era of the dollar is in full swing." The only thing left to hope for is restrictive actions by the US government, which will keep the national currency at a certain level.

Considering what will happen to the euro in the near future, many experts are trying to impose on the course formation process the situation with Greece. Analysts of the global agency Stratfor are considering only two options for further developments:

• Greece may leave the euro area, and Germany will enter the deutsche mark. This is one of the most negative forecasts for the EU, which will send the euro/dollar pair on a far southern voyage. Here there is a risk of a complete collapse of the European currency.
• The second option is to continue partnership with both Greece and Germany. Financial support to be provided to states will not destabilize the global economyEU, but will only slow down its rapid growth, which will not become a catastrophic phenomenon.

"One dollar - one euro" as one of the alternative scenarios for the development of events

Considering what will happen to the euro in the next few years, Goldman analysts are voicing the exchange rate at 0.9 dollars=1 euro by 2017. Experts do not stop talking about the threat of deflation and about almost zero, and in some places even negative growth in the economy. Since the beginning of 2015, the European national currency has fallen by 2.6% against the currencies of 9 countries of the world. There is relatively little time left before parity with the dollar, only about 15%.

It is worth recalling that the euro has already fallen to the same level with the US currency in 2012. At the end of 2014, the euro lost almost 12% of its value. According to Chris Iggo, head of fixed income at AXA Investment Management, parity can be achieved if the monetary policies of the ECB and the Fed remain the same. Let us mention that back in the fall of 2014, the ECB lowered the deposit rate by 0.2%. Echoes of Draghi's message about the purchase of sovereign bonds of European countries and the implementation of the next stage of the quantitative easing policy are still noticeable today in the format of the fall of the euro/dollar pair.

Temporary Restoration

Today's pullback of the euro to the north is a direct consequence of the actions taken by the ECB at the end of 2014. We are talking about reducing the interest rate from 0.15% to 0.05% and reducing the rate on deposits,which was mentioned earlier. These record low figures for the European area stimulated active lending by banks to the real, rather than the financial sector of the economy. Only six months later, after the adoption of drastic measures by the ECB, the European economy began to gradually recover. Recall that no one guessed about the rate cut. Only six of the fifty-seven economists surveyed thought such a scenario possible.

Euro and Russian national currency

Despite the fact that the outlook for the euro against the dollar remains negative, the ruble/euro ratio will be completely opposite. The European currency against the ruble will continue its growth in the near future. The weakening economy of Europe against the backdrop of Russia is in a very advantageous position. The situation is due to the events taking place in the world oil market. In parallel with the fall in oil prices, the euro will also rise. Despite today's rise in oil prices, experts are still waiting for the price of black gold to drop to the January low, so we can count on a second jump in the growth of the euro in Russia. Do not forget that the forecast remains a forecast, and it is highly likely that the ruble will begin to strengthen its position.

What will be the price of the euro, according to the world's best analysts?

Expert opinions on the euro differ and are distinguished by their optimism. Deutsche Bank believes in falling below parity and stops at $0.95 per euro by the end of 2017. The author of the forecast, George Saravelos, starts from the fact thatthat in 2000 the euro/dollar was trading at 0.8300. Due to the wave structure of exchange rate fluctuations with a frequency of seven to nine years, Deutsche Bank experts do not see anything catastrophic in the situation.

British bank HSBC gives a slightly different forecast for the euro. The experts of the financial institution are confident that by the end of 2015, the euro against the dollar will trade at 1.19. Barclays representatives prefer the 1.1 level, which can still be seen today, while Morgan Stanley experts tend to 1, 14.

At the moment it is problematic to say how the euro will behave in the future. The price today is not stabilized, in fact, like the EU economy itself after the crisis, not only at the end of 2014, but also in 2008-2009. The difficult actual situation does not prevent many analysts from believing in the very promising future of the European currency. It remains only to see what happens to the euro next.