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The European currency ended the previous week and met a new one on a major note. Experts are unanimous in their opinion regarding the huge potential of the euro, which is on the way to implementation. Experts are confident that this currency will show its best side, which means proving its explosive growth in the near future.
Statements about the impressive potential of the single currency are taking place against the backdrop of a weakening dollar recorded across the entire spectrum of the market. According to Stephen Roach, a senior fellow at Jackson Institute of Global Affairs, the era of endless leadership of the dollar is nearing its end. According to the analyst, the greenback will lose the status of the global reserve currency and will fall by 35% in 2021. This chance will be taken by the European currency, which is now trying its strength and trying to grow. According to experts, many attempts of the "European" currency are quite successful.
The US dollar is still leading in the EUR/USD pair, although its power is being questioned, and its dynamics are being hit hard. Due to its status, the USD has become a kind of "airbag" for the US economy. The role of the dollar as the world's leading currency has allowed the United States to mitigate economic shocks during the COVID-19 pandemic. The strength of the dollar and its weight in world trade have protected the United States economy from the effects of the appreciation of the exchange rate. It can be recalled that it most often accompanies the status of a safe haven currency. As a result, American companies conducting international operations in national currency remained afloat, and some increased capital.
On the other hand, the leading role of the euro in the global financial market, similar to the role of the dollar, is ideal for European leaders. The EU leadership seeks to obtain for its currency the same advantages that a dollar has, but at the moment, this is not feasible. However, the chances of a euro continuing the race for leadership are great. According to ECB studies, the share of the euro in international payments is about 19%, which is half that of the USD, but much more than other currencies.
According to experts, the global potential of the single currency is still not revealed, and its advantages are unevenly distributed among the member states of the Eurobloc. The slowdown in the international expansion of the Euro, which has been recorded for the past ten years, hinders the development of the EUR's potential. According to analysts, these two factors are holding back the growth of the single currency, which, if properly applied, will make a serious competition to the dollar.
However, at the same time, experts warn that the balance in the EUR/USD pair may be disrupted. If there are two leaders in a pair, then both currencies will fight for the lead role, while no one wants to be a simple follower. Such distortions will lead to an imbalance, which will complicate the forecast for the dynamics of EUR/USD. However, Citi's currency strategists argue that in any scenario, the EUR/USD pair expects growth in the short-term. The bank emphasizes that the "bulls" on the euro have good chances to catch up, despite the failed attempt to rise to 1.1400. It can be recalled that this rise was recorded at the end of last week. On Monday, June 15, the EUR/USD pair traded in a low range of 1.1241 - 1.1243, sometimes moving even lower.
Economists, in turn, are unanimous in their opinion that the international role of the European currency will be on top if its benefits are evenly distributed. It can be noted that there is now a clear bias among the countries of the Eurobloc. The advantages of the euro as an international currency are enjoyed only by a few states that issue reliable financial assets. This state of affairs weakens the euro, especially outside the eurozone. The situation can be corrected in two ways: by strengthening confidence in the euro and its active use in international operations, as well as by creating common financial instruments that will become protective assets for all countries of the Eurobloc. According to experts, such a strategy will allow them to survive the crisis with the least losses and recover faster after the coronavirus pandemic.
The first steps in this direction were taken in late spring, when European leaders decided to form a Franco-German alliance, as well as a fund for the restoration of the European economy in the amount of € 750 billion euros. According to experts, such comprehensive fiscal measures are an adequate response to the crisis caused by COVID-19. This gives investors confidence in the euro's stability, which is able to withstand periods of crisis.
It can be noted that the management of the global currency requires the provision of liquidity to foreign central banks, which is carried out through swaps and repo transactions. The European regulator has resumed a number of such measures and is ready to move on. According to economists, this is the right decision, thanks to which the foundation is laid for a powerful single capital market. Such a strategy will allow the euro to bypass the dollar in the near future and significantly strengthen its position. A harmonious combination of fiscal and monetary policies leads to the creation of a stable monetary union, thanks to which, experts believe that the influence of the euro will grow at times.
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