The euro caught up by the health crisis

Posted on Jan 22, 2021 at 6:27 amUpdated Jan 22, 2021, 8:12 AM

The continued strength of the euro complicates the task of the European Central Bank (ECB), which met on Thursday. Its overall exchange rate (against the currencies of its trading partners), down 1% in January, is just 2% off its December record and still 15% above its long-term average. “The markets believe that the ECB has not eased its monetary policy enough. It is only when they really realize the threat of deflation that they will sell the euro ” says Robin Brooks, chief economist at the Institute of International Finance. The markets will then anticipate further measures to avoid the trap of deflation and the persistent economic slump associated with it.

Investors also believe that Europe (France, etc.) is behind on its vaccination program, which will delay economic recovery and “Could make the euro fall towards 1.20 dollar”, says Kit Juckes, head of foreign exchange strategy at SG. This year, the euro, at 1.21 dollars, lost 0.8% against the greenback and evolved between 1.21 and 1.23 dollars. It yields 1% against the pound sterling, 2% against the renminbi, 0.4% against the Swiss franc. Hedge funds continue to bet on the rise of the euro against the dollar, according to data from US futures markets. However, they have been taking their profits for several weeks. The euro had gained 9% against the dollar in 2020.

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