Euro Declines to Lowest Since 2017 With Economic Woes in Focus
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The euro has fallen to its lowest point since May 2017, in the face of growing fear that Germany might be headed for recession due to the coronavirus ‘ lingering effects on the global economy.
On Wednesday in New York, the common currency dropped as much as 0.4 per cent to $1,0877. Concern over the succession plans of German Chancellor Angela Merkel and a dovish European Central Bank have weighed on the currency.
Deutsche Bank AG now expects Germany to experience a slight contraction in the fourth quarter. Statistics are set for release Friday for Europe’s biggest economy for the year. While the median expectation is for growth of 0.1 per cent, approximately 30% of survey respondents predicted a contraction.
“Persistently weak inflation will hold the ECB under pressure to provide further stimulus, raising downside risks for the euro that is already weakening in anticipation of future policy measures,” said Lee Hardman, foreign exchange strategist at MUFG Bank Ltd. in London.
Traders are dialing up expectations that this year the ECB may need to lower rates to combat the coronavirus economic fallout. Money markets are now pricing a cut by the end of 2020 in nearly six basis points, versus a nil chance of easing a month earlier. After similar moves last week by JPMorgan Chase & Co. and RBC Capital Markets, Credit Agricole downgraded its outlook on the shared currency Wednesday.
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According to Mazen Issa, a senior foreign-exchange analyst at TD Securities, who advises shorting the currency against the yen, the euro area is “uniquely positioned to suffer” from the economic impact of the coronavirus.
“The consensus view of a gradual recovery in global growth is, at best, overdue,” Issa, based in New York, wrote in a note dated 10 Feb. “The market will very likely underestimate the disruptions in the supply chain during this viral outbreak in the short term.”
Still, with the euro down nearly 3% against the dollar so far in 2020, a majority of currency forecasters are predicting it to strengthen by the end of the year. A median of estimates in a Bloomberg survey places the euro at $1.15 by Dec. 31.
–With assistance from Edward Bolingbroke and Mark Tannenbaum.
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