The suspension of the reforms under Donald trump, the fear of weak growth in the United States, as well as the strong economic data of Europe, weaken the dollar and stimulate the Euro. In the night of Thursday the single European currency temporarily rose to the level of 1.1780 U.S. dollars, the highest level since the beginning of 2015.
Previously, the Federal reserve announced that it will not raise interest rates. If the Euro is so quick to grow, it can destroy the economic recovery in some European countries.
In recent months, the mood on the currency market against the us dollar has changed completely. If, after the victory trump the Euro-the dollar was close to par, since the beginning of the year, the dollar has lost about 12% of its value.
If this continues, then in the export industries of Europe will have problems. Because the stronger the Euro, the more expensive it will export products in the Euro area. For example, a car worth 20 000 euros in the beginning of the year 20 cost of $ 800, and now — 23 $ 400. “If the Euro for a long time will be above $ 1,20, this can leave traces,” warns Marco Bargel (Marco Bargel), chief economist at Postbank. The southern European crisis countries, such as Italy, over the last two years benefited from a weak Euro.
“Trump creates chaos that makes markets nervous,” says Dirk Gojny, chief analyst of the National Bank. After the unexpected victory of the Republican candidate announced the program “phenomenal” tax reforms and investment in infrastructure of historic proportions. Still the President did not implemented. Wednesday in Congress, he again failed in an attempt to develop health care reform.
“Many of our clients say that they feel uncomfortable with the stock”
“The markets are losing hope to hear from trump anything constructive,” says Sebastian sax (Sebastian Sachs), currency strategist at Metzler Bank. “Health care reform was the simplest of his large projects. Hardly now will be a serious tax reform,” he said. And investment program of US will have to increase the already huge national debt. In principle, the country may need the economic boost. The growth rate in the first quarter of 2017, was the lowest level for three years; recently the IMF slightly downgraded its growth forecast for the United States.
Proof is the fact that on Wednesday the guarantors of the Federal reserve system unanimously opposed further rate increase and kept the main rate at the level of 1,0-1,25%. Higher interest rates can increase borrowing costs and thereby slow down the economy.
According to many market experts, the rejection of the rate increase is the main reason for the supposed paradox: in spite of moderate growth, the US stock market still chasing records. “Many of our customers say that they feel uncomfortable with stocks,” says Sachs of Metzler. “But they don’t see alternatives at such low interest rates”. Each month institutional investors such as pension funds and insurers have to invest billions in the promotion.
“Obviously, international investors reallocate large amounts”
Much better mood in the Euro zone. The economy grew up there in 2016 for the first time in many years, and more than in the US. To record high rose the German Ifo business climate index. First of all, in many European crisis countries had positive headlines: Spain is on the rise in Portugal, business is booming, Greece is moving to a new tourist record, rose slightly even Italy’s economy. And the election of Emmanuel Macron and his movements are “En Marche” is fueling hopes that the new President will be able to overcome the barriers to reform in France. “Obviously, in a few weeks, international investors reallocate large amounts of money in the Euro area”, — said the expert.
But premature joy can be dangerous for some States. “Italy and France have benefited from the recent weakness of the Euro. But in the structure of Italian and the French economy has been no material change,” says Bargel, chief economist at Postbank. The rise in these countries may be unstable and will terminate if the Euro will continue to grow. “In the short term with this rate of the Euro can be overcome. But if the course is longer it will remain at $ 1.20 or above, it will be a problem for the German economy in particular,” — said the sacks of Bank Metzler.