US Dollar, Euro, and Pound Sterling Outlook 2018

This is an overview article on the US dollar, Euro and Pound Sterling in 2018. The first part of the article will focus on the economic scenario in the United States, Eurozone and the United Kingdom. Thus, it will be easier to understand the behavior of exchange rates over the year.

The United States is the first country we would like to mention. The American economy is still rising gradually, with a comfortable level of consumption and low unemployment rate in the third quarter of the year. However, a further escalation of the trade war with China could substantially balance investment in the trade sector in the medium-term.

The growth rate of the GDP in the US is expected to remain at around 3%. Also, employment is expected to remain at the same level, without considerable inflation or deflation. Finally, the Federal Reverse raised the interest rate up to 2.25% in September and is most likely to increase it to 2.5% in December 2018. Looking at the EUR/USD chart, one could see that the price is likely to continue its downtrend in 2018. Lets’ analyze the chart below.

On the daily chart, we can see that the euro is moving towards the yearly lows. Economic indicators show that the eurozone economy slowed, and its GDP result was the worst for over two years. It means that the economy of the eurozone has entered a phase of slower growth after a slight recovery in 2017. In general, the current growth in the Eurozone can be characterized by good employment rate and consumption growth.

However, trade conflicts in world, political arguments within the EU members about government debt, and the uncertainty about Brexit can impact on the economic situation in Europe. Lets’ analyze the EUR/GBP chart below to make a conclusion about the United Kingdom and the eurozone. 

The daily chart shows that the pound sterling is going to be trading at the same levels against the euro in the next months. Besides, the proximity between these currencies makes the asset noticeably less volatile. Also, the EUR/GBP is subjected to changes in monetary policy made by the European Central Bank and Bank of England.

The UK is the last country on our list. The British economy grew in the third quarter as soon as the private consumption, public spending and trade balance showed good results. However, the British economic indicators have been less positive over the last months.

The readings of the UK manufacturing and services purchasing managers' indexes in October came out below expectations. Also, the annual retail sales growth decreased substantially, and consumer sentiment deteriorated. Brexit approval would support business confidence and investment, although there are serious uncertainties over whether the UK parliament will approve of the current Brexit deal.

Brexit has been much talked about in 2108, so the deal is clearly a source of volatility in the GBP. All in all, it is possible to expect the pound to be in the red during the year. 

Nevertheless, GBP can also be affected by the Bank of England’s monetary policy decisions. 

Finally, let’s check the GBP/USD chart to see the way the asset price fluctuates.
Political indecision may cause significant risks in the economic arena. The GBP/USD is fluctuating near its monthly lows. The British society is waiting for the upcoming vote on the existing Brexit deal on December 11th in London. Investors are concerned that Prime Minister Theresa May’s party showed a lack of support to get the deal approved.

In conclusion, a stronger inflation in the Eurozone could be a cause a trend reversal on the European currency chart. However, the low level of the interest rate in the eurozone can become a problem for the bullish EUR/USD exchange rate in 2019. As for the British pound, its future after a trend reversal will be fairly obscure until the United Kingdom withdraws from the EU on March 29, 2019.

Analytical department Olymp Trade

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