Has the Euro reached a top?
Published on 17.01.2018 12:29

The Euro is taking a breather today after jumping more than 3c against its US counterpart over the last 3 trading sessions and analysts are bitterly divided on how higher the currency can go.

The immediate future with the European currency lies in the hands of the European central bank who are now contemplating tapering off or ending the quantative easing program which has seen billions of Euros pumped into the economy to encourage consumer spending and boost inflation.

The program has had limited success with inflation remaining subdued and consumer pending average at best which has led some board members in the ECB to lobby for a continuation of the stimulus plan in its full content well into 2018.

The same board members seemed resigned to the fact that inflation will remain weak for some time and their attention has turned to wage growth which if happens, may boost consumer confidence along with spending.

“Domestic price pressures, which the ECB has the best chance of being able to influence, are rising only very slowly,” said Jack Allen, European economist at Capital Economics in London.

 “The main thing that the ECB is going to be looking out for is signs that wage growth is picking up, and so far those have been completely absent.” He added.

On the other side of the coin the ECB has a dilemma with the current levels of the Euro Against the major currencies, and in particular against the greenback of which it has risen to a 3 year high which among other things is threatening the fragile recovery of European exports as they become too expensive.

The ECB is now faced with a choice to cut back the stimulus plan and risk keeping inflation subdued indefinitely or begin tapering off the program and risk pushing the Euro higher which will be bad all-round for the European economy.


Andrew Masters

Analyst

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