It is never easy to predict where the forex market will be headed. This article focuses only on the Euro, and how its price will regulate this year. Will this year prove to be beneficial for the Euro or will it face a decline? Read further to get a better picture.
Forecast of Euro for the Year 2011
The Euro is used by 16 European countries, as a collective currency. These countries include both strong and weak economies. Strong economies are the Netherlands and Germany, and weak ones include Portugal, Italy, Spain, and Ireland.
The European Central Bank (ECB) is the determining body of the Euro policy and the central interest rates. However, each of these 16 countries is governed independently. although financial unity exists, but these countries are not administratively united.
Therefore, it is difficult to maintain and from a monetary Euro policy that works best for the currency. The economies that are weak would naturally want the Euro to be equally weak in order to improve their exports.
In the same way, the stronger economies desire the Euro to grow stronger, which would increase their purchasing power. Europe is in the recovery phase after the recession that hit in 2008. As a result, this year will witness an increase in those conflicting pressures. This is going to have a hefty toll on the Euro.
After Effects of the Recession on Euro
Greece and Ireland are the two weaker economies among the 16 countries. These countries were given two major aid packages in the year 2010, when their economy was practically devastated. This put considerable pressure on the Euro and drove it down to 1.1$. The probability for circumstances to shape up in a way that another such aid package might be required in 2011 is substantially high.
According to some, Portugal will be on the receiving end this time. However, Portugal being a smaller country might not weaken the Euro to the extent the last two aids did.
Mean while, in case of Italy or Spain requiring bailing out, the Euro will steam out of control since both the countries happen to be the big ones among the European countries running on Euros.
US Dollar, a Threat to Euro
Another factor that poses a threat to Euro’s growth in 2011 is the USA’s increasing recovery rate. If the dollar gets strong, it will dominate the financial markets which will result in a relatively weak Euro. Following are the two reasons for which the US dollar will face an increase in value in 2011:
- The USA is apparently making a recovery, and according to some predictions it is going to gain strength in 2011. In which case, the dollar will grow stronger.
- If the recovery carries on, interest rates in the US are expected to rise. A rise in the interest rates, without a doubt, leads to making dollar stronger.
Mentioned above are the reasons which have led to the Euro prediction for 2011, according to which, this year is going to prove challenging for the Euro. Hence, it is safe to say that from where it stands today, Euro is certain to grow weaker.
No comments:
Post a Comment