We look over what will influence the Euro in 2015
Ever since hitting its high of 1.39927 in early May 2014, brushing the psychological level at 1.40, its been downhill for the euro. But why did this happen, were there so many reasons to see the common currency lose almost 20% of its value in seven months?
The main reasons are within. With no real engine of growth to pull out eurozone economy, the lack of growth and austerity have been taking their toll and affecting the value of the currency. Traders are seen as an effective bunch that always want things working at maximum efficiency. Of course this doesn’t coincide with the complicated dynamics of running 18 countries more or less as one.
The course of action of the ECB will also be vital in the coming year. Will there (be a need) for QE, or will they stay the course. All this might hinge on whether its president Mario Draghi will stay in office. During his tenure he managed to hold opposing interests at bay and push through common actions to, at the very least, hold things together. With growing pressure for more fiscal stimulus and propping the economy through central bank actions, it’s certain that his opinion and power will have a profound influence on the where things are headed.
Russia has also been a factor in the continued downfall of the euro. Although its not entirely visible past the billionaires and oligarchs, the growth in the Russian economy has been quite beneficial to Europe, as it registered growth between 2% and 5% in recent years, far more than the struggling GDP of the large European economies.
But now with tightening sanctions and continued geopolitical pressure both sides have started to feel the heat. European exporters from Poland to France and even Britain have had to look for other markets, while the Russians have had to reboot subsectors that relied on their imports. Not much of a case for efficiency.
The US and the global economic outlook will also have a part to play, and obviously influencing the most traded currency pair – EUR/USD. With the Fed signalling a tightening of economic stimulus, which is seen as a confirmation of the strengthening of their economy, this will have an impact on trade between the two economic giants, giving a bit of an advantage to the U.S.
With all this said, we mustn’t forget that the lower the levels of the euro will be beneficial for the big exporting countries on the continent, none more so than Germany. Coupled with lower oil prices, for however they may continue, this could give a boost to European economies, or at least to those who manage to react quickly.
In any case 2015 will be a vital year for the currency, as it may face its greatest challenges all at once in an atmosphere of uncertainty and some might say fear. The stage is set for a make or break 12 months in which even new factors might emerge as the euro fights not only for its prosperity, but for its survival.