Dollar to Euro – Rate Forecast

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Technology

Predicting exchange rates is difficult at the best of times. A global pandemic makes things even more unpredictable. The Euro to Dollar rate could trend towards the 1.20s, or could even head to parity. It all depends on how serious any second wave of COVID-19 is.

 

– Current EUR/USD Spot 1.0924

– EUR/USD 52 Week range 1.0635 – 1.1492

 

According to  Currency.Wiki the eur/usd exchange rate has been fairly stable in the early days of May, hovering around 1.085 – 1.10 for a few days, seemingly consolidating the gains that it made towards the end of April, although still down on where it had been before the crisis.

 

COVID-19 Highlighted Weaknesses in Europe

The coronavirus crisis has been one which has truly highlighted the differences in the approaches taken by individual world powers, and the chasm between those who sought to minimize the immediate threat to life, and those who took a more economic view of the crisis. Even within Europe, different countries have taken different approaches, and where Italy and Spain have been hit hard, Germany has seen a very different outcome.

 

The Euro has been lagging in the foreign exchange stakes since the lockdowns started, and it’s highly likely that it will remain weak compared to others in the G10 until the end of the COVID-19 crisis. The currency has been creeping towards parity with the US dollar, and if another round of lockdowns were to occur it’s entirely possible that we could see that trend continue.

 

The Euro Zone is an unusual construct, with one currency covering numerous countries all with differing levels of infrastructure and economic health. During good times, the currency works well enough, but the cracks in the system start to show when there are periods of economic difficulty. While the US dollar faces its own issues, with Trump being a controversial figure, his focus on the economy is something that investors may find reassuring. The divide seen in Europe is more worrying.

 

Disagreements Over Coronabond Hamper The Euro

Many of the nations in Europe have been calling for a Coronabond – a system that would help to funnel funding to the weakest economies in the euro-zone, and those that have been hardest hit by the virus. Not all nations buy into the idea, however. Germany, Austria, and the Netherlands are fearful that they will find themselves funding Greece, Italy, and other countries, and that the weight of the demands would be too great for them.

 

The disagreements over the coronabond and how it could be implemented have weighed heavily on the Euro, dragging it down against the Pound and the Dollar. Italian politicians wrote an open letter urging Germany to reconsider its stans against the bond, saying “Today the EU does not have the means to respond to the crisis in a United Front. If it does not prove that it exists, it will cease to exist”.

 

It’s that response, or lack of, that the health of the Euro and the Dollar will hinge upon. The dollar has so far proven to be one of the strongest currencies during the Coronavirus. American companies are willing to continue trading at a time when other countries are fearful. The dollar is in demand, and it’s clear that Trump will do everything he can to protect the value of the currency.

 

When the coronavirus crisis is over it’s highly likely that the Euro, with the collaborative spirit that it represents, will be well-positioned to make a good recovery, and we could see the Euro break 1.1 and trend towards 1.2 against the dollar. It’s unlikely that the situation is over, however. As businesses re-open and social distancing measures are eased, the risk of a second peak remains. The second peak of the Spanish Flu – the closest parallel we have to the situation we’re facing now – killed many more than the initial outbreak.

 

If the second peak occurs soon and put the population of European countries under even more strain, it’s entirely feasible that by June or July we could see the Euro hit parity with the dollar. The ECB is not able to do much to support countries that are struggling, and there is no quick fix to coronavirus. Now is not the time for infighting.

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