US dollar (USD) could outperform euro (EUR) amid European turmoil
Since it was announced that Great Britain had decided to leave the EU (on 6/24/2016), the pound sterling has lost in value, by up to 10% on the day, reaching its price on lower against the US dollar. in several decades. We also reported that the The US dollar could reach parity with the pound sterling, and overtake it as the third most powerful currency in the world.
The potential economic shocks of a ‘Brexit’ have been voiced, particularly in the run-up to the referendum. For example, Mark Caney, the Governor of the Bank of England said that “the combination could lead to a significantly lower growth path and a significantly higher path for inflation”. Mark made these remarks around mid-May 2016, about 1 month before the vote.
The US dollar (USD) has a real chance of overtaking the euro (EUR)
There is another potential problem that has not been widely reported or speculated. The value of the euro against the US dollar could drop, and the potential fall behind the US dollar. If the UK government is able to negotiate favorable trade deals with the EU and other international economic partners, other key EU members may also consider abandoning the EU. The euro would suffer particularly if members of the euro area (countries which use the euro as their national currency, for example Germany, France and Greece) leave the EU.
The collapse of the European Union should benefit the pound sterling against the euro, and it could stay ahead of it, provided the UK economy is able to function well and avoid a long and harsh recession.
German automakers put pressure on EU – euro could suffer
According to a article recently published on the Daily Mail, German automakers urged the EU, in particular Angela Merkel (German Chancellor), to strike a trade deal favorable to the UK. The article read: “German manufacturers last night demanded that Britain be allowed to continue trading with the EU without any barriers. The auto industry has said punishing Britain makes no sense – and called on the German Chancellor to give the UK a favorable trade deal.
While the absence of trade barriers benefits the EU economy, it could eventually lead to its decline and weaken the euro against the US dollar. It should be noted that a strong dollar tends to lower the price of crude oil. It is not clear what approach the EU will take when negotiating trade terms with the UK, but other EU member states will follow closely.