CHART OF THE WEEK
After dipping briefly below 1.05 USD at the end of 2016, the EUR oscillated between 1.06 and 1.08 before breaking higher in mid-April. For the last few weeks, it has hovered at around 1.12 and is approaching the upper end of the trading range it has held for the past two years.
Expectations for fresh economic stimulus following Donald Trump’s election led investors to anticipate rapid monetary policy tightening. This pushed short-term rates higher and these determine exchange rate paths. With fading expectations for economic stimulus, weaker US inflation data, and a growing conviction that monetary policy normalisation in the Eurozone is in sight, the value of the USD has fallen against the EUR. In the short term, if doubts over US inflation dissipate, the USD could rise again. However, monetary policy normalisation in the Eurozone will likely put the EUR on a sustained upward path
The opinion expressed above is dated June 19th, 2017, and is liable to change.
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