The weakening of the US currency has already become a motto: all experts and market participants are talking about it. The only decent alternative to the dollar is the Euro, which is reaping laurels and rejoicing, although a little nervous on the eve of the EU summit.
The market associates a number of hopes with the upcoming summit of European leaders. First of all, they include the possible harmonization of the emergency financial assistance fund program for the countries most affected by the COVID-19 pandemic. However, the risk of disapproving this financial assistance still remains, although EU leaders have repeatedly discussed many of the nuances. Experts do not exclude that stronger countries with tight fiscal discipline will not want to finance weaker, burdened with high debt burdens. As a result, the discussion at the summit will come to a standstill, and the formation of the fund may drag on until August. Analysts say that if this scenario is implemented, the European currency will lose ground again.
According to experts, the euro reached unprecedented heights and managed to push the dollar thanks to adequate measures in response to the COVID-19 pandemic and the active financial support of European leaders. It can be recalled that the ECB increased the emergency asset purchase program by € 600 billion ($ 686 billion), to € 1.35 trillion in June 2020. Earlier, in May, the European Union announced the creation of a restoration fund worth €750 billion in order to further strengthen the economy, as well as to eliminate the negative consequences in the health sector.
According to estimates of Sam Zief, the head of the international currency strategy department at JPMorgan Private Bank, the timely measures taken by the ECB to normalize monetary policy in response to the pandemic, as well as the formation of a fiscal union, became decisive for the European currency. They determined its further dynamics, giving the euro a positive impulse and eliminating the historical and financial risks in the EUR/USD pair. The actions of the regulator and European leaders inspired the eurocurrency so much that the expert is ready to announce the beginning of a new era in which the reins of the global financial market, owned by the dollar, will now move to the euro.
According to S. Zief, the coronavirus pandemic dramatically changed the behavior of global investors, who began to withdraw from US assets and USD, preferring EUR. The expert believes that this is only the beginning, and the market will face a massive influx of funds into the single currency in the near future. If this scenario is implemented, the euro will receive additional forces for raising the so-called "fresh blood", which will flow into a single European stream.
Most analysts see the prospects for the Euroblock currency as rosy. Currency strategists at JPMorgan recently improved their outlook for the single currency, predicting it would rise to 1.1500 by the end of 2020 and strengthen to 1.2000 by 2021. At the moment, the euro is a bit short of these peaks, although on Thursday, July 16, the EUR/USD pair was trading around the level of 1.1400, and it rose to 1.1440 the day before. On Friday morning, July 17, the EUR/USD pair started at 1.1384 - 1.1385, but could not advance further. Nevertheless, experts expect positive dynamics from the euro in the near future.
The stumbling block for the European economy and the single currency may be the question of the ECB withdrawing from the emergency asset purchase program. This program significantly helps to restore a number of European economies, in particular Germany, France, Spain and Italy, but it can create problems for the euro. The market has to be on its guard so as not to upset the delicate balance in the global economic space. According to experts, curtailing the emergency program of asset purchases will increase the risk of sovereign debt growth. Experts are sure that the implementation of such a scenario will negatively affect the European economy and undermine the position of the euro.
However, such measures are hardly possible, since the ECB has no room for further easing of monetary policy compared to the Fed, which is able to expand existing incentive programs. However, there are pitfalls that do not allow the introduction of unnecessarily aggressive measures. According to analysts, Fed's energetic stimulating policy plays the decisive role in the dynamics of the EUR/USD pair, which seeks to secure the dollar and give a new impulse to the US economy.
Strong monetary injections from the Federal Reserve, which supported the dollar during the crisis period, now turned out to be crossfit. Recently, the dollar fell noticeably, capitulating to the euro According to S. Zief, the pillars on which a strong USD stands were destroyed during the reduction of rates in the USA. As a result, the US currency was overvalued in a number of ways.
Over the past 10 years, the market has lived in the conditions of the unconditional dominance of the dollar. According to analysts, these years passed under the sign of the dollar's growth, the dynamics of which are impressive. It managed to rise from the lows of 2011 to the highs of March 2020, having risen by 40% against the basket of key currencies. However, the situation has now turned around 180 degrees, and this turn does not bode well for the dollar. Forecasts about its upcoming decline are increasingly appearing, and this keeps investors in good shape.
According to analysts, the global market is on the verge of radical changes related to the strengthening role of the European currency. At the moment, the euro is seriously claiming the place of the dollar, and the latter has little strength left to fight. Experts find it difficult to answer whether the euro can become the undisputed market leader and how the dollar will behave in this situation. Nevertheless, analysts are hopeful of restoring equilibrium in the EUR/USD pair, but they realize that the era of the dollar is ending and the time is coming for the euro.
