© Christian Henning Schulz
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The Euro is certainly under a little pressure against the Dollar, due to the very likely decision of the ECB to increase bond purchasing including sovereign and corporate bonds, while at the same time the Fed is thinking about tightening policy at some stage. The medium term outlook at least for the Euro is rather weak.
At the same time the troubles we have in Russia at the moment have made the Euro more of a safe haven currency. Thus, in a short run we actually expect the Euro to remain stable, then go to 1.20 level by the end of 2014. With Euro zone growth hopefully improving, we expect the Euro to go back up to 1.27 with the Dollar and with the other currencies.
What will be the main drivers for the Euro during the fourth quarter of this year?
Besides the ECB monetary policy, the key factor is trust in the currency and its growth. If the risks that we currently have for Greece will not materialize, then it would improve confidence in the Euro and thus strengthen its exchange rate. If the ECB and the lower oil price are successful at driving up Euro zone growth, that should also attract move investment into Europe and appreciate the Euro.
Moreover, for a while the Euro zone has had and will continue to have a very large current account surplus, which is also supportive for the Euro in the very long run. We have also inflation differentials with the Euro zone inflation being low, while in the US and UK we expect it to go up, which also signalizes about the Euro appreciating.