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Euro Struggles Versus Dollar

Published 20/08/2018, 11:03
Updated 31/08/2022, 17:00

Trading sideways against the greenback since June in the 1.16 range, EUR fell most during last week’s Turkish lira collapse. Despite growth and improving sentiment indicators, the single currency continues to weaken against the USD while USD/TRY trend goes in the opposite direction.

Fact: the euro does not constitute a safe haven. Currently trading at 1.1327, EUR/USD is expected to decline further, approaching the 1.1300 range.

Supported by stronger than expected German Q2 GDP and inflation at 2%, the EU economy is doing well. Given at 0.40% and 2.20% on quarterly and yearly basis, GDP remains strong, a reassuring sign for the European Central Bank, whose normalisation schedule remains: next rate hike expected in Q3 2019. However, as Italian debt continues to grow and concerns over Italy’s Prime Minister Giuseppe Conte’s plan to increase tax cuts and benefit spending are rising, the EU will probably face headwinds in coming months. Due in October, Italy’s budget, if increased, could raise Italy’s costs and cause a domino effect on EU banks holding Italian debt.

Although economic vital signs favour a rate rise in 2019, the ECB will stay cautious in the coming months, as further uncertainties would delay a rate hike, a non-EUR-positive argument for the single economy.

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By Vincent Mivelaz

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