The largest growth of the euro since 2017. years will continue for a while, banks from Wall Street, because the broad shift of global investors to protect against US dollar suggests that the unique currency will soon be over $ 1.20.
This year, the euro strengthened more than 12 percent in relation to the dollar, because the mixture of eurozone and fears of the U.S. President Donald Trump created what the European Central Bank of Christine Lagard called the “global moment euro”. He reached a four-year maximum above $ 1.19 earlier this month.
Large investment banks, including Goldman Sachs, JPMorgan and UBS, will believe that a $ 1.16 dollar will fall a little while in the coming months because the US federal reserves, reducing the part of the assets in dollars.
A significant factor for the growth of the euro was the rush of investors to protect their exposure to the dollar, through the contracts that are actually bets on the euro in relation to the dollar.
“We just saw the tip of the iceberg” Global investors who are secured from the dollar exposure, said for the Financial Times Peter Schaffik, a global macro strategist in RBC Capital Markets.
“It is the main reason for the weakness of the dollar we have seen, and there will be more,” he added.
In particular, analysts note that great pension funds in some countries raise their own levels of dollars from the low base. Goldman Sachs expects Euro to reach $ 1.25 in the next 12 months. JPMorgan expects to reach as much as $ 1.22 by March. UBS Investment Bank expects $ 1.23 before the end of this year.
On average, the forecasts of investment banks expect the unique currency to exceed $ 1.20 in the third quarter next year, according to the estimates collected by Bloomberg. This would additionally burden the exporters in the region, and the safety of ESB would also be tested regarding the currency appreciation, SEEbiz.
The cost of protection against risk in dollars for European investors is related to American interest rates, which are expected to fall over next year, which will decrease part of the gap compared to the ECB interest rate. Experts for the foreign exchange market expect this to encourage another rush of risk protection in dollars.
“How that interest rate difference decreases … [zaštita] The potentially becomes acceptable for introduction, “said Jackie Bowie, the leader of the Europe, Middle East and Africa in the Chatham Financial Advisory Company.
European exports have already warned the blow to their profit due to strong euro and warned that long-term growth would burden them harder.
EUR piercing over $ 1.20 would also ask the ESB need to accept the reduction in interest rates to restrain the currency, given the potential pressure on the inflation due to the strengthening of the euro.
The $ 1.20 level has always been a “sand line” for ECB policy makers, Tomasz Wieladek, the main European macro strategy in T Rowe Price. Luis de Guindos, an expert in determining the interest rates of the ECB, in July that the course above that level would be “much more complicated”.
However, Dominic Bunning, G10 foreign currency strategy in Nomura, said the slower course growth was less worrying for policy makers, given that they could help alleviate the increasing economic demand.
The greater care was “if the euro is growing rapidly at the time when domestic demand weakens, and therefore the power of currency deteriorates disinflation tendencies,” Bunning added.
Some banks are pushing in the other direction: Citi predicts that Euro according to the dollar will reach $ 1.10 in the next six to twelve months “with signs of potential re-acceleration in the US”.
In the long run, others indicate the wider diversification of dollar property, which could be expected to use the euro. Central banks intend to increase their allocations in euros over the next few years, according to the research, which published the Think-Tank Omfif.
“The appreciation of the euro is a structural story, because spare currency managers are starting to rotate from the USA, and Fed reduces interest rates,” Wieladek said.
