The Euro dropped below parity against the US dollar in October. Since then, it has rebounded, but hasn’t returned to the levels at the start of the year. It remains to be seen if the pair will continue their upward trend, or if it will turn around and try for parity again. What does this mean for Euro crosses?
It is possible that the same theme will be used for next year, which was one of the major drivers of fluctuations in the currency. At least the first half. And that is the ECB’s unique approach to a unique challenge facing the Euro. While other currencies may operate within a single economic jurisdiction (ECB), the ECB must balance the fiscal policies of 19 countries. (20) Next year, the addition of Croatia.
An uncertain path
The Euro’s underperformance this year was primarily driven by the ECB being slow to rate hike party. The ECB was slow to raise rates even though it did eventually do so. This led to the currency becoming weaker, until it became apparent that the Fed was preparing to slow down its rate hikes. The Euro appreciated as it was clear that the ECB has plenty of room to tighten its belt. The expectation is that the ECB would continue hiking through the second…