My take on the current EUR/USD situation

The EUR/USD is the most popularly traded currency in the world today, traded at the highest volumes. Before we get down to the history, current state and future predictions of this currency pair, I feel that we should first discuss the economic factors that affect foreign exchange rates as a whole. The few factors that have a major representation on the everchanging exchange rates are the following, the relative inflation between countries, the relative economic growth between countries, the commodity prices, the relative interest rates, government intervention, relative national income growth, government debt, trade relationships between countries and lastly, political stability and economic performance. That does sound like a number of factors affecting a single tool of economic gauge for a country but we have to understand that the countries exchange rate does not only indicate the health of the economy but also provides investors a suitable gateway to make a planned investment.


Currently, the EUR/USD is at around 1.16404. In my opinion, everyone’s eyes in the world right now, are on America and its president Donald Trump. Mr Trump’s more protectionist stance on trade may result in a depreciating euro as he continues to slap tariffs onto many goods from the European Union, for example, cars from Germany. Additionally, many are expecting, at least 1 to 2 more rate hikes from the central bank of the united states this year, as Job numbers, manufacturing data and wage growth numbers are looking bullish. In that case, more people would rather invest in the USD as it promises better returns for investors in relation to the EURO or other commodities such as gold or even foreign government bonds. Additionally, the DOW & S&P have been performing much better than the DAX or CAC, hence this may provide investors an incentive to move more money to the US, causing an appreciation in the US dollar. Mr Trumps expansionary fiscal policies through tax restructuring and deregulation of markets may encourage economic growth which will encourage speculators to buy more USD. Emerging market currencies are in free fall, including countries like Turkey and Iran, including other nations in Asia. These economies tend to hold more USD in the event of continual economic problems as it’s the primary global reserve currency. Lastly, with no Brexit deal on the table yet, and much controversy on a possible no deal by March 2019, investors might stay away from the EU causing the dollar to appreciate.

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