Over the last year the EUR strengthened dramatically against the USD and the EUR/USD is currently at its highest level since the end of 2014. The most imminent factor that lies behind last year’s trend is the unexpectedly robust economic growth in Europe. As GDP expectations for the Eurozone were revised upwards, more relative to the U.S, we saw the EUR strengthen against the USD. Now there is a potential turning point in this relation. The latest months’ manufacturing PMI numbers for the Eurozone are dropping rapidly, which indicates that the pace among European manufacturers is slowing down. The opposite is shown among American manufacturers. Meanwhile, investors start to look at other alternatives as stock markets get more volatile and higher valuated. In the U.S, the bond market looks more and more appealing thanks to Trump’s expansionary fiscal policy and the tightening policy from the FED. As European bonds cannot match the rate levels, higher demand for the USD will lead to a weakening EUR/USD.
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