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Forex – Why the euro is so strong News

Tuesday, August 29th, 2017 | Economy

Many Börsians had a one-to-one euro / dollar rate on the radar at the beginning of the year. But the euro is becoming more and more important. Why? The following is an overview:
Why is the euro rising?
After the recent ECB Governing Council, banker Mario Draghi had announced that he would be looking to bid in the autumn. In the markets, this was seen as a signal that the program, which had previously been run to a volume of EUR 2.28 trillion, should be phased out.
Was the euro not yet downhill?
Yes. After the presidential elections in France in the spring, many investors feared a victory for the euro opponents. But then, Emmanuel Macron, a prominent proponent of the common currency, moved into the Elysee Palace: "The rapid decline and the partly disrupted break-out of the euro, which was feared in the case of an election by the Navy," is the case. According to foreign exchange traders, this strengthened Euro purchases.
What role does Donald Trumps play in politics?
The election of the real-estate billionaire to the US president initially sparked speculation on rising inflation in the US, as Trump promised a huge economic stimulus and radical tax cuts. This had pushed the euro to a 14-year low of less than 1.04 dollars earlier this year. But nothing has been done so far, as the Republican is strongly under domestic pressure, among other things, due to the Russia affair.
In addition, Trump is not in agreement with the US Congress, which is dominated by his own party: he wants a government truce for the planned construction of a wall on the border with Mexico. "The conflict that Trump has with Congress is exacerbated and the question arises again about the capacity of the US government," summarizes Helaba analyst Ulrich Wortberg. If the US debt ceiling is not raised in the fall, budgetary resources for public servants' salaries or the payment of bond interest rates can no longer be released.
In addition, investors are concerned that the impact of the cyclone "Harvey" will weaken the US economy and thus delay the tightening of US monetary policy.
What is bad about a high euro course?
Exporters are worsening the competition, as their goods become more expensive on the world market. However, corporations usually hedge against such developments. It is only when the trend turns or drastically shifts that companies are really under pressure – as in the pound sterling after the Brexit vote. In addition, a high exchange rate over the dollar-billed oil bill slows inflation and increases the risk of deflation, a spiral of falling prices and declining investment. The objective of the ECB is, however, an inflation of just under two percent – an objective that, according to observers, it will miss for a few years.
What are the guardians of the euro now?
They keep quiet – at least the impression of many Börsians after the traditional banknote summit in Jackson Hole in the US state of Wyoming last weekend. Mario Draghi refrained from commenting on the exchange rate, which is what Commerzbank analyst Ulrich Leuchtmann considers remarkable. Already in July his silence had been understood as a buy-signal and pushed the euro high. "Draghi must have known very well this time that any opportunity he does not say about the current strength of the euro will continue to fuel it." Draghi believes the press conference after the September meeting in the next week should be a more appropriate framework for commenting on the euro.


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