But the euro remains susceptible to ECB announcements. Following Mr Draghi’s press conference on September 3, the currency fell 1 per cent to trade at $1.11 as he revised down GDP growth for 2015 to 1.4 per cent from 1.5 per cent and gave a stronger indication that more QE is a viable option.
Recent action taken by the People’s Bank of China to devalue its currency, the renminbi, sparked volatility in the markets. Roger Hallam, chief investment officer for currency management at JPMorgan Asset Management, thinks there is a chance this could weigh on the value of the euro this year.
“Chinese authorities have been intervening in foreign exchange markets to stabilise the value of the renminbi versus the US dollar,” he says.
“At some point, they will probably need to rebalance their reserve allocation, which will require selling euros and buying US dollars – an activity that will be net euro negative. We have yet to see that impact in the markets but expect it at some point this year.”
And Mr Hallam warns there are other factors that could come into play causing the euro some turbulence later this year.
He points out: “From a political standpoint, the euro is still somewhat vulnerable to bad headlines. Not in the near term, but as you roll forward towards the end of this year, you will need to watch out for any other political noise or difficult developments that would draw the markets’ attention to some of the structural challenges that the eurozone faces.”
Ellie Duncan is deputy features editor at Investment Adviser
Expert view
Chris Beauchamp, market analyst at online trading platform IG Group, considers the longer-term prospects for the euro:
“Both the euro/US dollar and euro/sterling trends have further to run as rate differentials finally appear in earnest, but a pause is the order of the day now.
Chinese volatility has so far not had too much of an impact on the euro, but the chief effect will come as more data comes in. If it suggests the Chinese developments have hit European growth, then this could well accelerate the euro’s descent, as European Central Bank QE2 [second round of quantitative easing] becomes more of a possibility.”
