With solid growth in the Eurozone and monetary stimulus tapering on the horizon, the euro may end 2017 with one of the best performances of the G-10 currencies. Meanwhile, we look into the early 2018 Euro Forecast.
5 October, AtozForex – Putting aside daily ups and downs, the euro has been one of the best-performing major currencies in 2017. The shared currency already touched multi-year highs against the U.S. dollar and the British pound this year.
The Eurozone economy has enjoyed a steady growth this year, which increased investors’ anticipation for a smaller monetary stimulus from the region’s central bank. As a result, the euro moved higher against 26 of its 31 major peers. Here is how the euro is expected to enter 2018:
The early 2018 Euro Forecast vs. the US dollar
At the beginning of 2017, investors had big expectations for the dollar due to President Donald Trump’s big promises. However, 29 out of the greenback’s 31 major peers have outperformed the currency as the disappointment in the Trump administration spread between investors.
The euro gained about 10% against the dollar since this year began, despite two interest rate hikes from the Federal Reserve. The possibility of a third interest rate by December jumped following recent comments from the central bank’s chairwoman Janet Yellen. However, another hike is unlikely to change the euro’s course against the dollar.
On the other hand, the more clarity the European Central Bank provides on monetary stimulus tapering, the stronger the euro will probably become.
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The early 2018 Euro Forecast vs. the British pound
Of the G-10 currencies, the British pound was the second worst performing currency against the euro so far this year. Investors continue to worry about the effect that Brexit will have on the British economy, which weighed on the pound. More drag came from the economic outlook of the British economy, which appears dimmer than that of the eurozone.
A median of analyst estimates shows that the euro may stay near its current level against the British pound until the end of 2017. Talks about monetary stimulus tapering from the European Central Bank are matching signals of an interest rate increase from the Bank of England.
Options prices showed that investors have a similar estimate. Bets on three-month contracts to buy the euro against the pound remained bullish, despite a drop in bets favoring the euro since the start of the third quarter.
The early 2018 Euro Forecast vs. the Swedish krona
The euro has underperformed against the Swedish krona so far this year. This is a trend that will likely carry on for the remainder of the year. Sweden’s central bank, the Riksbank, appears to be moving to a tighter monetary policy faster than previously estimated.
The Swedish gross domestic product growth hit 3.1% in the second quarter from a year earlier, marking the strongest gain since 2010. The country’s inflation surpassed the targeted 2.0% rate from the central bank to hit 2.1% in August.
These economic factors are allowing the Riksbank more room to tighten its policy at a pace that the European Central Bank cannot match. The Swedish krona’s rate against the euro will most probably benefit from this monetary policy gap.
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This article "early 2018 Euro Forecast" was written by Yahia Barakah. Yahia is driven by a passion for decoding markets to make them accessible to all traders regardless of their experiences.
He has a broad experience in most major asset classes that fuses with his market analysis to provide coherent insights.
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