The persistent weakness of the Euro against the US Dollar, which began in late September 2018, will likely persist in the first few months of 2020 although a rally could follow as the US Presidential Election in November comes closer and climbs up the trading agenda.To get more news about WikiFX, you can visit WikiFX news official website.
For the Euro, the key problem is that economic growth in the Eurozone remains weak and the European Central Bank may therefore decide to ease its monetary policy even further. With the ECB deposit rate currently at -0.5% that might seem fanciful but there is nothing to stop its Governing Council from lowering the rate to -0.6% or -0.7%, even though market pricing towards the end of 2019 was still suggesting that rates will be on hold throughout 2020.
New ECB President, Old ECB Policy
Moreover, and perhaps more importantly, there is nothing to stop the ECB from increasing the asset purchase program that it restarted in November 2019 at a monthly rate of €20 billion or from widening the array of assets that it buys. It could also amend its forward guidance to suggest that monetary policy will be eased even further if seen as necessary. The previous ECB President Mario Draghi told his successor Christine Lagarde to “never give up” on propping up the Eurozone economy and that is advice she will surely take. There can also be little doubt that Lagarde will remain dovish and continue to press the Eurozones governments to ease fiscal policy by spending more or taxing less to help boost economic growth.
Looking back at the forecasts made a year ago by the DailyFX analysts, I was struck by the fact that four of us were bearish the Euro: two against the Japanese Yen and one against the Canadian Dollar while I predicted a fall against the Swiss Franc.
We were all right: EUR/JPY and EUR/CHF both dropped between late December 2018 and early September 2019 before rallying later in the year; EUR/CAD fell between December and early October before recovering. For me, the major surprise in 2019 was that the Euro did not fall further, as I had expected the Eurozone economy to be hit by Brexit which, of course, did not happen.