Draghi and the euro

Above: ECB Governing Council President Draghi looks to take a more imaginative approach to boosting Eurozone growth - something that could result in a weaker EUR.

The euro exchange rate complex (EUR) is forecast to weaken by a number of noted analysts as we move through the remainder of 2014.

Analysts remain negatively positioned on the shared currency at present with Barclays telling us their conviction of a lower euro has increased. Before we hear more on why there is a lack of confidence in the currency, please see the following spot levels for reference.

Euro rate today; latest quotes for reference at the last update to the article (29/08):

  • The euro dollar exchange rate is 0.07 pct lower at 1.3173.
  • The euro pound exchange rate is 0.20 pct lower at 0.7933.
  • The euro Australian dollar is 0.11 pct lower at 1.4075.
  • The euro to Canadian dollar exchange rate is 0.18 pct lower at 1.4294.

(Be aware that these are spot market rates to which a discretionary spread is added by your bank/provider. An independent FX provider will however guarantee to undercut your bank's offer, in some cases delivering up to 5% more FX. Please learn more.)

Draghi Signals Fresh Bout of EUR Weakness

ECB president Mario Daghi continues to maintain an exceedingly dovish tone with his most recent appearance in Wyoming seeing him warning that stimulatory action would come from the ECB as inflation in the Eurozone continues to slide.

He acknowledges that an expectation for inflation in the Eurozone has decreased. He stated that “the Governing Council will acknowledge these developments and within its mandate will use all of the available instruments needed to ensure price stability over the medium term.”

According to Peter Rosenstreich at Swissquote Research developments this week have only strengthened his opinion that in the medium-term EUR will continue to depreciate:

"The pace of deflation in the euro-area has only increased despite the ECBs radical feat of negative interest rates. July headline inflation in the euro area fell to 0.4% from 0.5%, which extends the downwards trend since October 2011. On the growth side, GDP failed to expand in Q2 coming in at 0.0%."

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* Note these rates are illustrative and serve as a general pointer. Rates have been arrived at using the spreads supplied by FX comparison sites.

Euro is a 'Conviction' Sell at Barclays

barclays euro conviction sell"Our conviction in selling the EUR has only increased, but the deterioration in Japan's economic circumstances and improved tactical opportunities in the USD and GBP lead us to a change in our preferred line-up on the long side," says analyst Jose Wynne at Barclays.

The ultimate driver of the weakness being forecast is the worsening economic outlook and more rapid disinflation in the euro area.

It is predicted by many that ECB accommodation will be kept for longer and perhaps increased in scale, opening further downside potential in the common currency.

For euro to pound rate (EUR/GBP) watchers, "nearer term, the GBP should benefit most versus the EUR from the G10’s fastest economic growth and greatest underpricing of short-dated interest rates," says Wynne.

Meanwhile, the euro dollar rate (EUR/USD) is also expected to decline as the broad-based USD rally looks set to continue as robust US growth shines amid a softening global economy and upside risks to the Fed’s policy path make it the best strategic long.

Wynne says:

"Accordingly, we recommend rolling short EURJPY positions into a short EURGBP and short EURUSD from 0.8004 and 1.3280, respectively.
Developments in Europe this summer have only increased our conviction in broad-based EUR downside.

"However, the data in Japan and recent behavior of the JPY have reduced our conviction in it as the best risk-adjusted long versus the EUR. Instead, we see increased tactical opportunities in short EURGBP and better strategic opportunities in short EURUSD."




5 pct more british pounds