Dollar Escape: Is that the Star Hour of the euro
How does the euro become a sure harbor
The power of the euro is also due to differences in monetary policy. The European Central Bank (ECB) has repeatedly lowered interest rates in response to persistent inflation in some parts of the euro area, while the Fed retains higher interest rates for a longer time, which made investors prefer the single currency.
According to Oxford Economics estimates, if Trump imposes 20% duties on EU exports, Eurozone growth can decrease by up to 0.3 percentage points this year and next. The forecast makes the assumption that Brussels will respond with purposeful counter -meters on American goods, not with full -scale response.
Germany’s incentives in the amount of EUR 1 trillion reinforce confidence
Much of the German expenses will be funded through new bonds, which increases profitability and attracts foreign investors. Commerzbank, the second largest lender in Germany, predicts that in the next decade, the country’s debt ratio can increase up to 90% of gross domestic product (GDP), which will make the euro denominated assets more attractive.
« Additional public debt will make the German short-term bonds a little more liquid and hence more attractive, » says expert Holger Schmiding in this regard.
Last month, Goldman Sachs predicts that massive incentives will increase German GDP by a full -rate percentage point and stimulate the growth of the euro area with 0.2 percentage points. Two reasons for this are called the Bank’s chief economist Sven Yari Sten: Hope to greater growth in Germany to be transferred to neighboring countries as well as the expectation of the rest of the euro area to increase its military spending faster in response to the request given by Germany in this direction.
Given the ambitious military spending plans, Rebecca Christie, a senior research associate in Brussels Brain Trust, supports the idea of issuing Eurobatics.
« Joint bonds are a strong tool that is worth using more actively. A subsequent program after a recovery plan will raise money and encourage the world to trade in euros, » the expert said.
Christie, who has also worked in the ECB, is referring to the package of incentives worth 750 billion euros, started after the pandemic, more than half of which was funded by joint bonds – an unprecedented EU move.
The issuance of Eurobatics is supported by the southern EU countries, while northern community member states, including Germany, are against.
The pros and cons of the stronger euro
Although some currency traders predict that the euro may continue to strengthen against green money by the end of the year, most major investment banks predict that it will move around its current levels. « At the moment, everything is extremely uncertain and it is unclear whether the euro will continue to rise in price, » says Rebecca Christie of Bruegel Brain Trust.
