After recording solid gains in 2017, the euro currency may face a different environment in 2018. The euro has already proven so many experts wrong and even sent Goldman Sachs’ (GS) chief FX strategist packing. Toward the end of last year, 2016, GS had advised traders to take long positions on the US dollar against the euro, sterling pound and yuan. At the time, it seemed like solid advice since the US dollar was crushing other major currencies.
Then as the months wore on in 2017, the GS prediction proved wrong. By September, the US dollar index had dropped by over 12% and the euro had gained over 16% against the dollar. Instead of the prediction euro would hit parity with the dollar, GS traders were covering their US dollar long positions and shorting.
Now, we can never know if this mistake had anything to do with Robin Brooks’ departure, but it shows just how remarkable the euro has been. The euro currency was boosted by a string of positive events, all of which had caused the negative outlook last year. General elections held in France, Germany, and Netherlands all went to strengthen the unification of the Eurozone. Additionally, strong economic performance in Germany and most other European countries helped to shore up revenues and cut down the budget deficit.
By mid-2017 even as the euro currency was already outperforming other major currencies, the ECB announced it would be reducing its QE measures through the bond-buying programme. That gave the euro an even bigger boost, just before inflation figures came in the third quarter being higher than expected.
There is little doubt the Eurozone will continue to record impressive economic performance into 2018. Already, trade deals are being cut with Canada, Australia and other countries in Asia. However, it is unlikely that the ECB will raise interest rates in 2018 given the current strength of the euro currency. That might hurt the currency considering how other central banks are turning hawkish.
Nevertheless, popular opinion is that the euro will continue on its path well into 2018. Only the Brexit talks now remain uncertain, and those might have a negative impact.