Heraeus’ precious metal experts have dared to look at how the European common currency, the euro, could develop into a greenback this year.
• Euro-US dollar before volatile year
• Economic growth in the foreign exchange market is probably crucial
• Euros before appreciation
As part of their “Precious Metals Forecast 2020”, they not only targeted precious metals with silver, platinum and palladium, but also focused on the currency market in their outlook for the current year.
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Euro strength forecast
Specifically, the experts discuss the euro-US dollar currency pair as part of their study. They see the European common currency as an advantage over the greenback. As the main source of information for developments on the foreign exchange market, Heraeus did not identify the interest rate policy of the central banks, but the growth rates of the economies. Given that tax stimuli in the United States are becoming less and less effective, experts anticipate that growth rates in the US will lag behind those of euro zone will be left behind. The OECD predicted that economic growth in the US would slow from 0.3% to 2.0% in 2020, while growth in the euro zone would decrease by only 0.1% to 1.1%.
This is expected to cause major fluctuations in the foreign exchange market – after the euro was traded in a narrow range last year, significantly more volatility can be expected this year, according to the experts. They also refer to the past, when years with particularly low volatility were always followed by more than twice the volatility in the following year.
Fed with more leeway
The expected weaker economic growth is becoming more expansionary monetary policy on the part of the central banks, the Heraeus experts continue to write. The US Federal Reserve has more scope for monetary policy measures than its counterparts from the European Central Bank. If the monetary policy becomes an influencing factor, the European common currency should benefit from this, the precious metal professionals believe.
But if there are geopolitical factors that cause major shifts in the currency market, the US dollar will probably strengthen. In particular, a possible trade dispute between the USA and Europe is discussed in this context, especially after the conclusion of a partial agreement with China. “The focus of the US administration could now shift to the negotiations with the EU, whereby the US trade balance with the EU has some potential for conflict. Should the US pursue a hard line, this could strengthen the dollar,” says the Study continues.
Nevertheless, the experts generally see the euro in a better position on the greenback. “Overall, we expect the euro to appreciate against the US dollar and range between $ 1.21 / € and $ 1.08 / €. The US economy is expected to see 2020 compared to the eurozone in 2020 the rate of growth will decline more sharply. If this picture were to manifest itself, the Fed would be more likely to ease monetary policy further. ”
Strong dollar and trump
This development is likely in the interests of the US President Donald Trump who has repeatedly stressed in the past that he would like to see a weaker dollar as the strength of the greenback puts the US at a disadvantage. The Republican had always seen the country’s monetary authorities as duty to lower the key interest rate. A strong dollar makes exports more expensive – but the US president wants to strengthen them.
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