Euro gains ground in 2017
Euro/dollar exchange rate fluctuating due to many factors
After the euro has mainly depreciated against the dollar since last August, the exchange rate has made a turning point since the beginning of this year. Trump's 'America first' message is causing the dollar to weaken and so the expected parity cannot be tested for the time being.
The reason that the dollar has mainly appreciated in the second half of 2016 is mainly due to the historical certainty that the dollar has in it. Easy said; with increasing unrest in the world, banks and investors look for security in dollars, which logically causes the exchange rate to rise. Currency traders cite the uncertainty caused by the upcoming elections in Europe as the reason for the euro's decline. The dollar is a safer currency in the eyes of banks and investors, partly because of its longer history.
Since Trump took office, the euro has been gaining ground against the dollar. Due to the protectionist intentions of the new president, the value of the dollar has weakened against the euro and also the Japanese yen. At the beginning of this week, Peter Navarro, a Trump adviser, sneered at Germany because he believes Germany is abusing the weak euro to promote exports. In response to this ruling, the euro continued to appreciate above $1,07. The dollar appreciated again on Wednesday afternoon. This was mainly due to the job figures in the US, published in the ADP labor market report. The US added 264.000 jobs in January, a figure well above analysts' expectations. The jobs figure is seen as an important indicator of the US economy.
Another stimulus to the dollar could be the Federal Reserve (FED) rate decision. Next Wednesday evening, the American bank will make a new interest rate decision that could make the dollar appreciate in value. A rate hike is likely to give the dollar a new boost, although the Federal Reserve is not expected to hike rates in February. The bank intends to implement an interest rate change of a quarter of a percentage point three times this year. As a result, plenty of opportunities will arise in the coming months.
This means that this stimulus to the dollar will probably not materialize in February, while the euro has a tendency to gain in any case, given the protectionist policies that the United States is currently pursuing. In addition, investors are less nervous about political elections in Europe and that is another reason why the euro/dollar rate does not move towards parity in early February.
By the way, dollar devaluation is in line with some analysts' forecasts. They also expect a depreciation of the dollar in the longer term, as the dollar – in their view – is about 25 percent overvalued by mid-January against the main currencies, such as the euro and the Chinese yuan. This is putting pressure on the US export position.
Wouter Job
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