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The fall in the dollar harm European economy
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Loading...The prestige of the U.S. dollar is being questioned as the currency weakens and competitors such as the euro and the renminbi gain strength, an investment manager told CNBC Monday.
Though the U.S. economy has been performing well and the Federal Reserve has signaled further interest rate hikes, investors have been concerned over when and how this policy will be delivered.
U.S. President Donald Trump has not given details on tax reform and infrastructure spending — two of his biggest campaign pledges. This coupled with several scandals at the White House have let markets nervous with investors ditching the dollar for other currencies.
Meanwhile, the euro was at another high on Monday. The common currency rose to a two-and-half year high against the dollar on doubts over the U.S. currency but also after European Central Bank President Mario Draghi gave two speeches last week with no indications about the bank's next steps for monetary policy.
The positive economic data, which included the release of better-than-expected purchasing managers' index (PMI) readings last Wednesday, and a large current account surplus in some euro zone economies, have given confidence to investors to buy euros.
However, there's some political risk in the horizon for the euro zone. Viktor Nossek, director of research at Wisdom Tree, said that the Italian election due in 2018 could be a problem for the euro area.
Looking at the other side, the weak dollar and the appreciation of the euro pose problems for most companies in the eurozone, as exports become more expensive. Market participants are concerned about the strength the euro has seen in recent weeks, as everyone expects the ECB to cut the QE program and start raising interest rates. However, this may not be the case, given the rising currency and the low inflation that is likely to remain so. The current economic impulse in the eurozone is the result of increased exports due to the low price of the euro and if it continues its upward trend, it is very likely that we will see a deterioration of the European economy, a fall in indices and inflation at the same time.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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