Despite the post-FOMC drop, the euro has been performing well this year. Last week, EUR/USD reached a 2 year high near 1.40 rebounding from 2012’s lows just below 1.20. That said, this new high rate occurred mainly because the ECB made no change to rates. Thus, the main lending rate remained at 0.25% while the deposit rate remained at 0%. Moreover, a recently released report from the Commodity Futures Trading Commission noted a bullish sentiment towards the euro.
How is the Strength of the Euro Affecting the Economy?
When compared with other major international economies, the GDP within the eurozone is growing at a slower rate. Additionally, European exporters such as the German-based Adidas company is stating that the euro’s current high value is resulting in a decrease in exports. Specifically, the company projects that its profit levels in 2014 will be approximately 17 percent lower. Adidas is not the only company making these claims. The printing-press making company, Heidelberger Druckmaschinen, also stated in early February that the high value of the euro currency was the reason behind the decrease in that company’s earnings.
What Will the Euro Value be in the Near Future?
According to a Bloomberg study that surveyed options analysts, the euro has a 32 percent chance of decreasing to $1.30 in value and a 53 percent chance of growing to a $1.45 value in 2014. However, financial institutions such as Morgan Stanley believe that the euro will reach a high of $1.42 this year – before dropping to $1.24 in value towards the end of the year. The bank believes that the current strength of the euro is in contrast with the ECB’s plan to fix the overall economic situation in the EU. In 2013, the EU’s economy shrank by 0.5 percent and in February of this year, consumer prices rose by just 0.8 percent or less than half than the target of 2%.
