16 January 2018Reading time: 2 minutes

In the course of 2017, the Euro rose compared to the Dollar after concerns about the elections in various European countries faded away. However, in December the Euro was shortly pressurized by the early elections in Catalonia for a new parliament. Chaos broke out in Spain after the forbidden referendum in October about the independency of Catalonia took place. The Spanish government hoped that the elections would restore peace in the country and region. A majority however, voted again for the separation of Catalonia from Spain. For now it remains uncertain if the separation will indeed take place. Despite these developments the Euro is almost 12% higher than the Dollar throughout 2017.

Analysts from UBS claim that 2018 might be a predominantly difficult year for the Dollar. The Swiss bank expects that the Dollar may benefit from interest rate hikes which the Federal Reserve will likely execute, because more investors participate in American bonds as a result of the increasing returns. Despite the value increase, UBS still finds the Euro cheaper compared to the Dollar. According to UBS this might result in more appreciation from investors for the European coin. However the future development remains to be seen.

Analysts from ING share this optimism about the Euro and claim that the currency has recovered its momentum. This is partly due to the economic growth in the Eurozone, which made the European Central Bank (ECB) consider reducing the quantitative easing program. According to ING the ECB will remain one of the most important influencers for the Euro. The amount of bonds monthly purchased by the ECB has been reduced as of January 2018 from EUR 60 billion to EUR 30 billion. ING expects that the ECB will completely finish the purchase program at the end of 2018. Analysts also expect that the first interest rate hike by the Central bank will take place around mid-2019. Now the policy of the ECB normalizes, analysts see enough upwards potential for the Euro. ING expects that the EUR/USD will be at 1.30 by the end of 2018, which would be an all-time high since September 2014.

Rabobank is cautious about the potential of the EUR/USD for 2018. The analysts are optimistic about the Dollar compared to other currencies but claim that without a significant increase of the American inflation, the Dollar might not be supported by investors. For now Rabobank holds its expectation that the EUR/USD will reach 1.20 in 2018. It remains to be seen how the EUR/USD ratio will develop in the future.

Vontobel products on EUR/USD are tradable at DEGIRO, Lynx and Interactive Brokers.

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30/05/2020 13:50:33