The Euro currency continues to be influenced by opposing factors creating high volatility and trends in both directions. Generally speaking, the currency has been under immense pressure as the central bank has failed to keep up with other regulators regarding interest rates. In addition, investors fear gas and energy shortages as a result of geopolitical issues.
When analyzing the Euro it is beneficial to also be evaluating the price movement of the Euro Currency Index (EURX), which is the value of the Euro equally split against the US Dollar, Pound, Yen, and Swiss Franc. The price movement of the index has significantly declined over the past 12 months but the bears have specifically taken hold of the market since the 27th of June 2022.
Since late June the price has declined from 105.99 to 100.89. Over the past 3 days, the index has slightly increased as the US Dollar has seen a pause in its bullish trend. Overall the Euro has seen a mixed performance against the British Pound and Japanese Yen but has also seen significant declines against the Swiss Franc and the US Dollar.
One of the main reasons for the Euro witnessing pressure is the uncertainty that surrounds the Eurozone. Politics and energy supply chains are causing tensions between the Eurozone and Russia. The Italian Prime Minister and ex-president of the ECB resigned a few days ago in response to failed negotiations with other members of the coalition government. However, the Italian President, Mr Mattarella did not accept his resignation and persuaded the official to re-form the coalition to create a new government. Though this is not necessarily something new in Italian politics, the overall situation has created a high level of uncertainty and a lack of investor confidence.
Another concern for investors is the energy crisis in the Eurozone and specifically in Germany. According to reports and certain statements, Germany is experiencing a gas shortage due to a reduction in supplies from the Russian Federation through the Nord Stream gas pipeline closed for maintenance. In addition to this, experts believe the shortages will only worsen in the Autumn months. Regarding how extreme and dire the situation may get, will depend on developments between the two regions and how Russia plans to react to recent sanctions.
“There is still hope for the Euro” according to the European Central Bank. The ECB is predicted to increase interest rates by 25 basis points and some economists also believe there is a chance of the central regulator also increasing rates by 0.50%. However, it should be noted that economists are generally leaning towards a quarter hike this month and in September. The Central Bank is hoping that the increase in interest rates will firstly lower inflation, support the Euro, and not negatively affect the economy’s high debt level.
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