Many analysts expect that the European currency will make another rally again before winter ends. At the moment, it is gathering strength before it sharply rises, but the consequences of this option are difficult to predict.
Last month, several experts focused their attention to the inflation rate of the euro amid ECB's current monetary policy. Some analysts and market participants expect the euro to noticeably strengthen against others, primarily against the US dollar. It should be recalled that different levels were repeatedly broken this January over the fate of the US currency, so experts argued that it had entered a phase of steady decline.
The euro has been considered one of the strongest currencies in the Big Ten (G10) for the last six months. Most analysts highlight the Fed's current aggressive monetary policy, which provides a clear growth in government spending, as the reason for the significant bias in the euro's dynamics. Experts believe that this contributes to an increase in the state budget deficit and threatens the US dollar.
Recently, the ECB has applied methods similar to the Fed, that is, the use of quantitative easing (QE) programs. However, the situation is often not in favor of the representatives of the eurozone. Despite the fact that the pace of the ECB's securities repurchase is ahead of the same indicator of the FRS, the latter has been much more successful in conducting another round of quantitative easing, simultaneously reducing the interest rate and buying back securities. As for the economic instruments of the Eurozone, they turned out to be much weaker than the US ones. Thus, experts are worried that the euro will lose to the dollar in the long run.
The current monetary policy of the US and European regulators contributed to the fact that the market began to treat the euro as a new safe-haven currency. Several experts admit that the EUR managed to push the USD, increasing competition in the markets. Analysts call the euro a "safe haven" to which investors rush at moments of drawdown of dollar assets. For the past three weeks, large players in the market have been actively increasing their positions in the EUR/USD pair, which is now trading in the range of 1.2126-1.2127. According to experts, the current data on the EUR/USD pair reflects the growth of the bullish mood for the Euro currency.
However, this further strengthening of the single currency could sharply reduce the competitiveness of European goods, which could drop exports and significantly slow down the recovery of the European economy. According to analysts' observations, there is a negative impact on the eurozone economy in view of exports' decline. The COVID-19 pandemic worsened the situation. At the current euro exchange rate, the eurozone economy found itself between two problems – deflation and low GDP growth rates. Based on the preliminary estimates, the European economy will return to pre-crisis levels not before 2023.
Euro's possible long-term growth is a doubtful advantage. On the one hand, a strong single currency will give confidence in the international market, but on the other hand, it will reduce the competitiveness of European goods and hit exports. As a result, the ECB has to restrain the growth of the euro, periodically controlling it for the sake of the Eurozone's economy.
