The Euro and the dollar are held in a tug of war and, against the odds perhaps, the Euro is prevailing. With current affairs not having been sympathetic to the Eurozone. Italy entered stagnation at the end of last year. France’s economy is straining under pressure from the “gilets jaunes” demonstrations, and indeed even he perennial European economic motor Germany is only barely growing.
Investor sentiment has deteriorated and the business environment is at its coldest point in two years. The European Central Bank has also signaled heightened awareness to severe risks ahead.
Despite the anguish, the euro has been dozing since October. At $1.14 against the greenback, it has scarcely advanced since the third-quarter of last year. It is, in fact very steady. Against the pound, there has been a little more excitement. Rightly or wrongly, market forecasts for a rock-hard Brexit have been lessening, giving sterling a moderate kick higher. One euro now buys around 87p, down from 90p at the outset of the year. The next chapter of the Brexit psychodrama will decide where this rate heads next. For now, the drop against the pound, plus an abrupt climb in the Chinese renminbi, has dragged down the euro on a trade-weighted basis.
But investors are increasingly beguiled by the perception that the dollar has crested, notably since the dovish U-turn from the Federal Reserve, making it tough to develop an argument for meaningful euro weakness against the currency from here.