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Europe eyes rise of US dollar amid uncertainty

by Daily Sabah with AA

ISTANBUL Nov 17, 2016 - 12:00 am GMT+3
by Daily Sabah with AA Nov 17, 2016 12:00 am
Accelerating its upward trend in the aftermath of Republican Donald Trump's win in the U.S. presidential elections, the dollar has not only moved towards developing country currencies but also towards the euro.

While uncertainty has increased in global markets following Trump's win, appetite for risk has decreased. Due to Trump-related uncertainties, U.S. 10-year bond interest rates and the dollar index showed a drastic increase. Putting pressure not only on developing country currencies but also on that of developed countries, the dollar rapidly accelerated against the euro.

Europe has been watching the policies of the European Central Bank (ECB) and the steps to be taken by the U.S. Federal Reserve (Fed) following Trump's election with curiosity. While the risks that will emerge from the Fed through Trump concern Europe, the rise of nationalist, conservative and populist parties in Europe increases pressure on the euro. Expectations that the Fed will rapidly increase interest rates have caused recessions in euro-dollar parity, which dropped to 1.07 on Wednesday, the lowest level in the past 11 months.

High uncertainty

about Trump

Thu Lan Nguyen, a currency strategist at Commerzbank, told Anadolu Agency that the main reason behind the decrease in parity is the fact that the dollar is getting stronger. There are views on the markets that Trump's policies to stimulate inflation will cause the Fed to be more aggressive in raising interest rates; however, these opinions are not strong enough. Nguyen said the uncertainty about what Trump will do is high, noting that it is unclear what his financial plans are, or whether he will implement conservative trade policies. Nguyen stated that the markets would be observing whether Trump achieves the issues on his agenda, and in this case, euro-dollar parity is like to decrease to 1.05 levels.



The dollar will fall

Rabobank Senior Currency Strategist Jane Foley said there are many unknowns about the financial policy to be implemented in the U.S. from now on. Noting that central banks do not like uncertainties, Foley said Fed Chair Janet Yellen might make statements that will soften the market. Foreseeing that the dollar will fall, Foley said euro-dollar parity would rise to the 1.14 level in the next 12-month period. Referring to political risks in the eurozone, Foley urged caution with regard to the referendum in Italy next month and elections set to be held in France and the Netherlands. Foley stressed that these elections, which will cause political tension, are likely to cause downside risks for the euro, but the current account surplus in the eurozone will limit those risks.
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