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Could the Euro be Headed Lower?

Published on: 11/23/18 11:01 AM

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Category: Forex, Market, Trading, World News

Current situation


The news of Great Britain’s decision to leave the European Union last year took the markets by storm. Heavy selling ensued along with a sharp increase in risk aversion. Although things have calmed down quite a bit for the EU, there are still numerous issues with numerous countries that could put pressure on the region’s shared currency.

Over a year after Great Britain voted to leave the union; the nation is still working on a viable exit plan. Despite the many complex issues that Great Britain must contend with, it is only a matter of time before the country stands on its own once again. The question that many traders and investors might be asking now is whether or not other countries may then follow its lead and decide to break from the union.

Ongoing issues in Italy

The ongoing debt issues in Italy have been the subject of much speculation and debate. The country is trying to formulate a budget plan that makes sense given its extremely high debt load, but thus far it has not been able to appease the European Union with its plans. Italy has already had its budget proposal rejected twice, and the country does not appear close to having a deal that the union will accept.

The notion of Italy leaving is especially important, and comes with some key differences when compared to Brexit. Italy is a member of the Eurozone, and because of this a decision to leave could have a significant and direct impact on the euro currency.

Improving U.S. economy

Such a move could cause a sharp decline in the euro, which has been weakening against the U.S. dollar since April. The improving U.S. economy and accelerating U.S. inflation have reiterated plans for further interest rate hikes in the U.S., and thus the dollar may continue to rise against the euro. Some analysts have argued for a move towards parity between the two currencies, and another nation deciding to leave the union could certainly push the euro towards that level.

Great Britain and Italy are not the only nations to consider cutting ties with the union. Other nations, including Poland, Sweden, Hungary, Estonia and the Czech Republic are all also seeing some negative sentiment towards the euro. Although the chances of another country electing to leave the union, at least in the short-term, are very small, it is an issue that must be considered by long-term traders and investors.