Will the Euro Maintain a Strong Position Against the Pound and the Dollar?
In a turbulent and unpredictable global economy, the euro is so far performing well when measured against the dollar and the pound, and is set to rise to 1.20 against the dollar and 1.0 against the pound.
These days, however, it is hard to predict quite how currency will behave, with situations arising which are frequently creating market volatility. Here are some considerations.
ECB
The ECB has been deciding on its July policy, which could have significant consequences for the euro. Whilst the euro is currently strong against the pound and the dollar, there have been concerns that the ECB might push up interest rates in an attempt to halt the euro's progression.
The currency’s strong performance serves to work against the ECB’s policy of keeping monetary conditions in the Eurozone highly stimulative, and so its success could be short lived. It is hard to say whether the euro can rally against the pound any further, especially given these concerns, but it is also unlikely that the ECB's decision will be announced before September.
Brexit
Looking at the long term, Brexit has been one of the major influential factors in terms of the value of the pound, and this looks set to continue as Brexit negotiations get underway. The referendum in June 2016 saw the pound plummet 7% against the euro, signalling a long term slump for the currency.
Many economic forecasts have predicted that Brexit will be bad for the British economy, and that the pound will face difficulty recovering for the foreseeable future once Britain leaves the EU in 2019. This could spell an era of dominance for the euro against the pound, although there is also a great deal of uncertainty surrounding this subject.
Pound's Potential Recovery
Negative sentiment against the pound, however, is said to have been too extreme, and some believe that the pound could be set for recovery sooner than expected. It makes sense that, at such historically low levels, it will be hard for things to get worse for the pound, which currently trades at around 1.12 against the euro.
Those trading EUR/GBP through brokers like forex.com could well be on the lookout for the pound’s bounce back as time goes on, and it is likely that there will be growing interest in the next steps for the paring.
Trump’s Healthcare
The euro had been gaining on the dollar after news of Donald Trump's failed healthcare bill bolstered the currency. These gains have now paused, but there is still much upcoming news which could have some bearing on the exchange rate.
Construction data, for instance, is likely to have an influence on the strength of the dollar, and investor pessimism over Trump’s competence could well serve to damage it, strengthening the euro in the short term. The failed healthcare bill will only serve to weaken Trump’s authority/image, possibly damaging the dollar’s future prospects.
The euro has been holding up fairly well against both currencies, but there could be changes around the corner as Brexit negotiations get underway and US financial data comes through.