This week we turn our eyes to Europe once more. The economic climate in the European Union seems to be quite heated these days: many reports coming from all around the eurozone are flooding in, and investors are paying close attention to the euro, particularly in the context of the much weaker dollar we’ve been seeing these days.
Earlier today the European Central Bank’s Survey of Professional Forecasters was published. The survey, which is quite important to the ECB and whose results always figure into the decision-making process of the ECB, showed that while there is stable economic growth and a decrease in the unemployment rate, the inflation rate still remains relatively low. As we’ve mentioned before on our blog, the ECB is currently in the midst of a massive stimulus program whose goal is to boost inflation to a healthy level. It appears this level still hasn’t been achieved, despite investors’ hopes that the ECB might be satisfied with the current progress and start turning towards more hawkish policies.
In light of these results, it’s not surprising that the European Central Bank announced on Thursday that it would not be changing its approach quite yet. However, some investors still remain optimistic, hoping that it’s only a matter of time for inflation to climb up. Ideally, many traders expect that the ECB would change its stance before the year’s end. While it’s too far-fetched to hope for rate increases like the ones we’ve seen in the United States, investors would like to see a gradual reduction and phasing out of the stimulus program, which would pave the way for a stronger euro.
The current estimated inflation, according to the survey, is 1.5% for 2017. The European Central Bank is aiming at 2% in order to consider ending its stimulus program.
The situation is also a little bit confusing for the European Central Bank. In regular economic terms a lower unemployment rate always corresponds to a higher inflation, the two variables are interdependent. Nevertheless, in Europe right now we’re seeing an increase in the GDP, a decrease in unemployment, but no significant increase in inflation.
Despite the slight uncertainty as to what course the ECB would take in the next couple of months, the euro managed to triumph on the financial markets today and achieve a two-year high against the American dollar. We are now looking ahead to the next threshold: 1.1715, the level from August 2015. The euro is riding on a bullish movement that’s largely based on the expectations we mentioned above (that the ECB might change its policy later this year). It is almost bizarre that this continues, despite the fact we have absolutely no confirmation from the ECB regarding any of this.
The euro was further able to push off the dollar due to the political struggles of Donald Trump. His healthcare bill failed miserably earlier this week, and he managed to further incriminate himself by stating that if he knew Jeff Sessions would reclusive himself, he would not have chosen him. The support for the US President is at an all-time low and this is reflected in the United States’ currency, which has fallen to an almost yearly low at barely 93.99 against the euro.
At this point the euro is very well-positioned to continue to gain against the American dollar, so watch out for profitable opportunities.
