© Soren Hettler
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I strongly disagree with this assessment, since the European integration and in particular the common currency has done a lot to support economic growth on the continent during the last decades. The abolishment of trade barriers and the free movement of labour combined with the Euro that allows fast and transparent payments within the common currency area are the basis that leads to more prosperity in its member countries since the mid-nineties of the last century. This is even more true for countries with lower per capita income as the Euro simplified the convergence process.
It is true that the Euro's significant depreciation against many other currencies since mid-2014 resulted in a decline of the terms of trade for citizens in the currency area. On the other hand, a weaker currency seems to be justified from a fundamental perspective, given the structural problems in some member countries, especially against countries like to US, where the economy has already embarked on a path of robust growth. The Euro devaluation is thus a part of the solution, rather than of the problem, as the depreciation should support economic growth and help to reduce unemployment rates in the EMU.
We see the Euro trading in the area of 1.00-0.98 against the US Dollar by year-end. The main reason for this continued depreciation is the Fed, whom we expect to start hiking rates in the autumn. Although it is not sure that the ECB will be able to continue its asset purchases with the amount of EUR 60 billion per month, neither economic growth nor price developments should brighten enough to suggest an early end of the QE program. Furthermore, the Euro area still suffers from unsolved political uncertainties, especially the dispute between the EU and political leaders in Athens, and the failure of some governments to decisively tackle structural problems, especially with regards to their national labour markets.
What are your forecasts for EUR/USD and EUR/GBP for the end of this year?
On a longer-term view of one year, we expect the Euro to depreciate towards the USD at 0.97 in 12-months time. Talking about the EUR/GBP, we see trading towards 0.67 levels (by the end of 2015 the currency cross should stand at 0.69). Although the British pound will not be able to benefit from interest rate hikes in the next twelve months, the positive economic situation in UK and a rising price pressure will help to stimulate rate hike expectations and thus support Sterling versus a globally weak Euro.