Euro and Sterling are still licking their wounds on the year’s turn, as the US dollar dominated the exchange market in 2016. Yet, this year may be even harsher for the currencies in Europe, as US policies are set to differentiate given the change in administration following Donald Trump’s win back in November and the dollar may extend its gains.
What does 2017 hold in store for the British Pound and the Eurozone’s currency? We bring up our magic ball and take a wild guess looking into the future.
Starting off with the most anticipated price action, Euro is heading towards parity for the first time since 2002 according to many reports and analysts. Since the EURUSD exchange rate broke below the strong support at 1.05, predictions coming from investment banks and institutions all talk of when, not if EURUSD will decline to 1.00. The grimiest ones even predict a fall to 0.95, a resistance level dated back in 2001!
Given the expected quantitative easing program’s extension from the European Central Bank, you’ll have a hard time locating an optimistic view for the Euro. At the same time, the strengthening US dollar doesn’t show any signs of weakening in 2017, thus making the case even worse for the Eurozone’s currency.
Euro will also have to face key political events in 2017, since major elections are set to take place this year, most notably in Germany and France, the two powerhouses behind the single currency. Depending on the election results Euro may struggle even more to resist trending downwards. Let us also not forget any surprises from any referendums, given Europe has been affected by those a lot lately!
Sterling’s hopes for a comeback seem better than Euro’s after the positive signs in late 2016, following the US Presidential election. Yet, the British currency is expected to be largely influenced by Brexit worries once again, especially in March when Article 50 trigger talks will monopolise the news.
Although the British Pound’s downtrend is well established, there’s room for correction and we might witness a pullback since GBPUSD has traded so far away from the moving average the past months. Of course, Brexit’s effect will drive prices beyond any positive or negative economy news, as we’ve experienced in 2016. A climb towards 1.40 shouldn’t be out of the question although being a very optimistic scenario. A decline’s pause this year is much more probable, in spite of trading against a powerful US dollar. On the other hand, the weakening UK economy following the Brexit vote will act against any positive attempt for Sterling to recover from the free fall!
On the contrary, Sterling’s chances for a recovery look a lot more promising against Euro! The UK Pound has lost a lot of value in the last two years and the UK referendum made things worse. Yet, 2016 ended with strong positive signs for GBPEUR that recovered successfully from the lows at 1.10.
Given the weakening Euro as discussed earlier, Sterling is likely to make a move against Euro in 2017, as long there are no surprises. 1.10 has shown great support in the past and we may not see Sterling trading below that level in 2017. On the flipside, GBPEUR might test 1.25 before Spring, yet predicting a climb up to 1.35 is really testing our crystal ball’s limits!