The Euro has always been considered to be a safe bet during global economic turmoil. However, like yen, it is facing a fall from the graces. The Chinese yen fell to its 5 years lowest in September 2016. The move is being seen as China’s policy to combat foreign reserves and bring in stability. However, in a stark contrast, the Euro seems to be losing its sheen following the aftermath of the Brexit vote. Although the value of Euro fell sharply by 4.7% the day following the Brexit vote, it has since recovered quite well.
Effect on Pound
The most pronounced effect of Brexit was seen in the value of pound depreciating. In fact, the pound sterling has fallen to $1.20-$1.25 recently. Both Euro and the sterling continue to plummet despite efforts by the European nations to keep them afloat. The main reason seems to be an insecurity in the investors. However, the main hitters of the problem are going to be tourists in the coming festive season. Airports are already reported to be short changing the pound against the euro with less than the 1:1 ratio which was the usual go to before the Brexit decision. In order to combat this, the financial experts are advising on changing your sterling to euro online before you leave for your holiday.
Russia behind the Euro
Good news, however, came from an unexpected quarter, with Putin openly declaring that he is going to support with the comeback of the Euro this move was a direct effort on the Russian President’s part since 40% of Russia’s foreign reserves are directly stored in Euro. As Putin has said, he is looking for a consolidated Eurozone in order to have the Euro strengthen further. A smaller 19 member Eurozone is definitely likely to benefit with a few like-minded members working towards a more focused community.
Brexit and the Euro
A major factor that is going to influence the prices of Euro in the foreign market is Scotland’s probable decision to leave the Eurozone as well. The process is likely to be messy, with Scotland looking at a 2 year period of moving out if it does vote to do it. This is going to put further pressure on the pound sterling. However, any more countries deciding to leave the zone will put a heavy pressure on the Euro, with a 1:1 parity with USD and Euro breaking down. This will likely cause a domino effect in a host of other currencies around the world as well. Moreover, the Euro forms 57% of the US Dollar Index, meaning that the EUR/USD exchange rate and the US Dollar Index are at the same levels. However, this parity is being strained to its limits because the British Pound comes right after Euro and Yen, to be the 3rd largest component of the Index.
Italy: Europe’s Problem
Following the aftermath of Brexit, the Italian prime minister, MatteoRenzi hinted at a bank recapitalization in order to bring his country’s economy under control. This was a problem that followed a decade in the making with wrong decisions and wore financial steps taken by Italy. In fact, at present, Italy has more than $360 billion of Non-Performing Loans (NPL) under their belt. While the solution to this in the past was mainly more capital, as of 2016, a new rule for bailing out has been abolished. This means that Italy is looking at a strong motion to consolidate its economic ties by relying on the taxpayer’s money only as a last resort. While this would have been better in other countries, most of the debts from the Italian banks (45%) are directly owned by retail owners, who are, ironically, the ones who are being tried to be protected by the move. Further moves by the current political regime are expected to hit very soon with new policies. Let us hope that these will be a lifesaver for Italy in the short terms and for the whole Eurozone in the long term.
Despite concerns about the fall in Euro’s rates, the Eurozone has weathered UK’s decision to leave. The reason is manifold, but main reasons are:
- A consistent growth rate in Germany
- France returning to better positions for growing
France saw a growth in the private sector in the recent months with the IHS Markit purchasing managers’ index going up from 50.1 to 51.6. This indicated an increase in activity, with the best growth rate in 10 months. Similarly, while Germany was going through a slump in the services sector, the employers compensated this with high export growth rates. Don’t leave your investment strategy too late. Talk to one of the experts at this site about investing with binary options. And get your financial calendar information from markets.com
In conclusion, we would say that the Euro, while not as strong as it was in the pre Brexit days, still continues to be a favorite in the economic world. This is primarily due to the resilience shown by the various members of the participating states in keeping the market buoyant. While the European commission’s consumer confidence indicator did lower by 0.6% to -8.5 in August, experts hold that this is well within permissible limits.