The European economy is doing quite well, signs aren’t just on green in the Netherlands. Various factors are combining in the EU so that the exchange rate between the euro and the dollar, which was predicted last year to reach parity, is increasing even more. Last week, the exchange rate passed 1.20 dollar.
The euro has actually been strengthening its position against the American currency since April last year. The exchange rate was between 1.05 and 1.10 dollar then. The positive sentiment in Europe is due to the plans of the ECB, among other things. The financial markets are expecting that the ECB will further reduce the buying up programme this year, according to analysts. According to some reports, the ECB could stop the programme after September. Merkel’s new government, which is being formed in Germany, also makes people feel calmer.
It’s not just due to the positive reports from Europe that the exchange rate is responding, for that matter. On the other side of the pond, trust doesn’t appear to be flourishing. The American economy is doing well, the Fed is increasing interest, government is cutting expending, yet the dollar exchange rate started a downward trend mid-2017. People are quick to point at President Trump, who is incapable of gaining the trust of investors, despite his promise of an increasing economy.
Dutch bank ING earlier reported that the euro is still too cheap. In an article in Dutch newspaper FD, the bank said the exchange rate is still one to two per cent undervalued, which means the rate can still climb to 1.25 dollar.
It’s not known how the rate will develop. Exchange rates can go up and down after press conferences from central bankers. Analysts are also divided. It’s certain that a strong euro could play tricks on exports. For importing countries, European products would be relatively more expensive.