EUR/USD Could Decline Further, Say Experts

The EUR/USD dropped to its lowest in more than two years earlier in October, and the currency pair could continue to move lower, market experts said recently.

Greenback gains against euro

The greenback rose to $1.2501 against the euro this month, as global market participants responded to data showing the region’s economy is suffering, according to Bloomberg. Ian Stannard, the head of European foreign-exchange strategy at Morgan Stanley in London, said that traders have been flocking to dollars instead of euros. 

The media outlet also reported that U.S. investors have been shifting more of their resources to stocks of companies based in the nation, according to data provided by the Federal Reserve and followed through June by UBS AG. These figures reveal that in 2009, these market participants held 21.1 percent of their $35.8 trillion in equities in the shares of foreign companies. They have since reduced this portion to 19.3 percent.

This shift will combine with the dollar’s relative cheapness – and the U.S.’s robust growth compared to other nations – to cause the greenback to move higher, Geoffrey Yu, a senior currency strategist at UBS in London, told the news source.

US economic strength

The U.S. economy has shown several signs of strength recently, including a decline in unemployment below 6 percent and record corporate profits, Sam Diedrich wrote in a recent Forbes opinion piece. The author also emphasized that consumers have made significant progress paying off their debts.

This news built on top of the U.S. Commerce Department’s recent announcement that it was revising its estimate for second-quarter economic growth to an annualized rate of 4.6 percent, compared to the prior figure of 4.2 percent. This situation helped alleviate the concerns of many market observers, who had grown worried after the nation suffered lackluster gross domestic product figures in the first quarter.

Factors pushing dollar higher ‘dwindling,’ says expert

More recently, the world’s largest economy has shown some signs its recovery is slowing down, according to Bloomberg. For example, a report released last week showed falling retail sales. Stephen Duneier, founding partner of Santa Barbara-based Bija Capital Management LLC, commented on the situation.

“All of the drivers for the dollar are sort of dwindling,” he told the news source. “In Europe, now, everyone is struggling. Japan, China and Brazil are also all struggling. But people seem to think that, somehow, the U.S. is able to work its way out and it has some magic potion.”

Market participants’ perception of U.S. economic strength can easily impact when they expect the Fed to bolster its benchmark interest rates, and a recent compilation of futures prices conducted by Bloomberg suggested these borrowing costs will rise in December 2015, compared to the September increase predicted two months prior.

Investors who want to trade forex might benefit from knowing about the recent predictions market experts have made about the EUR/USD, as well as the reasons they provided for these forecasts. Being aware of these key factors might help these market participants make better-informed decisions.