EUR will continue to appreciate - Scotiabank

Analysts at Scotiabank expect that the EUR will continue to appreciate through their forecast timeframe. 

Key Quotes:

"We do expect the rapid appreciation in the single currency in the past few months to moderate or unwind somewhat into year end. Nevertheless, even at this stage, we view 2017 as being a very positive year for the EUR with strong price gains overall thus far strongly suggesting that the EUR’s secular trend decline from its 2008 peak around 1.60 halted this year at 1.03 and will reverse moving forward. 

Eurozone growth momentum remains strong, which will limit near-term EUR weakness, but political risks remain obvious and a potential restraint on gains into mid-2018 (regional independence issues, Italy’s general election has to be held by May of 2018). 

The ECB is edging closer to the end of its asset purchase programme, however, and we expect the eventual normalization of monetary policy to allow investors to refocus on one of the EUR’s key structural supports—its large current account surplus relative to the US. 

We also note that global central banks retain a low relative and absolute exposure to the EUR in reserve asset holdings and large, institutional investors may have to adjust exposure to the EUR as growth strengthens and the ECB exits from extra-ordinary policy accommodation. We look for modest strength in the EUR next year and more obvious gains into 2019 as a result."