A year ago most forecasters were sure that the single European currency is on the brink of an abyss. It seemed doomed to slump and eventual parity with the American dollar. But what happened in fact? The reality turned out to be just the opposite of what had been expected.
Let us take a short dive into the past to recall forecasts for the euro at the end of 2017. Plenty of analysts had no doubts of the euro failure due to obvious factors. The US Federal Reserve pushed the rates up, while the ECB on the contrary carried on with economic stimulus program massively buying the euro. A cherry on top, the whole Europe was busy preparing for elections. All of this made the situation on the markets rather tense.
The EUR/USD major, representing the world’s two largest economies, ended 2017 at 1.04, the lowest rate over the past 14 years, and the forecasts were explicitly downbeat. No one could ever expect that EUR/USD would suddenly spike by 15% ending up close to its yearly highs. Certainly, it was weakness of the American dollar that made it happen. The greenback failed to spur and kept sagging, despite Trump’s tax bill was passed at last.
As analysts had estimated, the British pound sterling had hardly any brighter prospects. However, it gained 10% during 2017, defying forecasts. Brexit turned out to be not as gloomy as it had been pictured.
The euro and pound are known to be tied together, so no wonder both grew in relation to their US counterpart. It would have been quite odd if these two currencies had shown different dynamics. It should be said though that the pound was significantly backed by the Bank of England hiking the interest rates for the first time in a decade. Meanwhile, with a persistently sluggish inflation, there are no signs of a possible rate lift in the short run. In addition, the monetary policy was left unchanged.
