International Trade

Currency outlook: what can we expect from the euro over the next 3 months?

2 min read

01 August 2018

Former special projects journalist

For businesses looking to trade with Europe in the coming months, or those already operating within the EU, it helps to keep an eye on the euro.

Small businesses looking to enter the exporting game over the coming months may be wondering which markets would be the best to target.

Europe may have been a comfort zone for UK exporters in the past, but with Brexit fast-approaching, the uncertainty surrounding trade deals may push them to look further afield.

One factor that may be influencing decision makers is currency. According to Jeremy Cook, chief economist at WordFirst, the euro was a “middle pack player” in Q2, losing 5.6% against the USD but gaining nearly 1% against the pound.

What factors could we see influencing the euro over the next three months? Here are three of the top influencers, as outlined by Cook.

The European Central Bank

In June, the European Central Bank announced that it would end its quantitative easing plan by the end of year, if economic data warranted it.

Despite this, the euro saw losses as the ECB would not be raising interest rates until least next summer. In addition, the reduction of stimulus via QE could be reversed if economic data is weak enough.

These decisions were unanimous, which Cook suggests will limit the strength of the euro over the short term.

Political uncertainty

It’s not just the UK that is experiencing political turbulence. Legislation in Italy on migration, debt spending and taxes are all of a concern to the international investment community, while in Germany Angela Merkel’s ruling coalition has taken a blow.

Such uncertainty will also likely negatively affect the euro’s strength.

Trading with the US

The EU is attempting to agree a deal allowing for a reduction in punitive tariff arrangements on motor vehicles with the US, but last month president Trump threatened a 20% duties rate on EU cars if trading barriers with the US were not broken down.

While this offers more uncertainty, if the rest of the world keeps trading it could mean a fall for USD, and potentially gains for the euro.

Overall, better safe than sorry – business dealing in Europe should be prepared for more euro volatility, which could affect their bottom line.