Dollar weakness hurts European exports

The euro is getting stronger. Expressed in US dollars, the European currency has surged above $1,22 in recent days. This is a disappointing development for European exports. Despite Brexit, the euro pound is more stable.

The euro was under pressure up to and including the first quarter of 2020, but then a turnaround followed. Since the end of November, the euro has started to gain momentum. This month, the currency has risen above the psychological barrier of $1,20, although that has not caused any resistance in the market. The price is now at its highest level in nearly two and a half years.

Dollar weakness since March
The corona crisis is an important factor in this. Although both the European and American economies are being hit hard, European countries are making progress with the support measures for companies. In response to the crisis, the US Central Bank (FED) lowered interest rates, which in effect followed the break in the trend. The exchange rate recovery is not so much euro strength, but dollar weakness. Compared to other currency pairs, such as the Swiss Franc or the Japanese Yen, the euro has not appreciated or has appreciated much less.

Initially, banks estimated that the euro would go out around $1,20 the year. In the meantime, expectations have been revised upwards. The ING Bank predicts a rate around $1,24 around the turn of the year. For European exports, the continuously rising euro is a setback, something that agricultural exporters do not hide. From this point of view, it is therefore quite possible that the European Central Bank (ECB) will take measures to depress the euro/dollar exchange rate, or so is the estimate of currency analysts.

Weaker pound ahead
With all the Brexit troubles in the background, the euro-pound rate moves stable around 0,90 in December. With concerns over a no-deal, analysts expect the pound to weaken in the near future. The harsh lockdown in the UK related to the coronavirus mutation may also put pressure on the pound.

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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