Why has the euro lost value against other major currencies?

Why has the euro lost value against other major currencies?


Do you intend to immigrate to the Netherlands this year or the next, or have you already settled down in Amsterdam, Rotterdam or The Hague? If so, you might need to transfer money internationally, either to your Dutch bank account to facilitate your life in the Netherlands, or to pay your Dutch mortgage, in which case you might be making regular payments.

If this is the case, you might be interested in the euro’s value versus other major currencies, such as the pound or US dollar on the interbank market recently, and which factors might affect it, looking ahead. With this in mind, please find below a look at the value of the euro, which you may find useful for your upcoming money transfer.

Pound sterling & US dollar

If you’re a Brit immigrating to the Netherlands, it may interest you to know that the pound sterling has risen in value on the interbank market in recent weeks. To be specific, the pound stands at 1,1586 versus the euro at the time of writing, compared to 1,0646 on August 10th, close to two months ago, a gain of +8,83%. This may interest you, because when you transfer money to your Dutch bank account, you might get more euros in total now, compared to if you’ve bought euros since mid-August.

Similarly, if you’re an American thinking of jumping the pond and starting afresh in Utrecht, Maastricht or Eindhoven, you might like to know that the US dollar has risen versus the euro on the interbank market by +6,83% in the last year, from 0,8492 on September 23rd 2018 to 0,9072 today at the time of writing. This could make buying a Dutch property more affordable compared to if you’ve transferred money in the last 12 months, by potentially increasing your total in euros.

US / China trade war weighs down euro

One reason why the euro has lost value against these two major currencies recently is because of the USA’s and China’s trade wars. Although America and China, the world’s two largest economies, are the main participants in the trade conflict, it has affected third party countries worldwide.

To explain, in recent months Washington and Beijing have imposed tariffs worth hundreds of billions of dollars on each other, to punish each other for what they consider unfair trade practices.

However, this has weakened the world’s appetite for goods, such as German machine components and vehicles. As a result, Germany, the Eurozone’s largest economy, looks increasingly close to a recession. This has contributed to the weakening of the euro.

ECB cuts interest rates, expands QE

In addition, the euro has also weakened on the interbank market because of the European Central Bank’s (ECB) recent decision to cut interest rates and expand its monetary stimulus, known as Quantitative Easing (QE).

To be more specific, the ECB voted to cut its deposit rate by -0,1%, further into negative territory to -0,5%, while restarting QE, which involves electronically printing 30 billion euros a month.

The ECB’s decision is intended to spur the Eurozone’s economic activity and shield the bloc from the effects of the trade war. However, because lower interest rates make investing in EUR-denominated assets less profitable, while QE increases the supply of euros available, the ECB’s decision has devalued the euro.

However, it’s important to note that other factors have affected the interbank exchange rates recently and may continue to influence the value of the euro, looking ahead. In particular, it’s possible that Brexit could shift the value of sterling versus the euro, while the US Federal Reserve’s recent interest rate cut may influence the US dollar against the common currency.

Pound’s value likely to be affected by Brexit

Recently, there have been reports that the UK and EU may be increasingly close to a Brexit deal, at long last. For example, the EU’s Chief Brexit Negotiator, Michel Barnier, told journalists earlier this week that it’s “difficult but possible” to reach an agreement. If so, it’s thought that this would favour the UK’s future economic growth, thereby influencing the pound.

In particular, it looks like the UK and EU may find common ground in the next couple of days, over Brussels’ proposals for Northern Ireland to retain the EU’s customs regulations, once the UK exits. Alternatively, if the UK and EU can’t reach a Brexit deal this week, the EU has proposed holding an emergency summit next week, if it looks like talks are close to concluding. Otherwise, UK Prime Minister Boris Johnson may have to ask for another extension, up to January 31st.

US dollar influenced by Fed’s interest rate cut?

Meanwhile, recently America’s central bank, the Federal Reserve (Fed), cut interest rates for the second time this year, down to 1,75%-2,00%. The Fed did this, to protect America’s economy from the effects of Washington’s and Beijing’s trade war and “to keep the economy strong”, in the words of central bank Chairman Jerome Powell.

Also, the Fed left the door open to cutting interest rates further, if necessary. This may affect the value of the US dollar against the euro, because, historically, when the Fed cuts interest rates, this makes buying USD-denominated assets less attractive.

So, to sum up, the pound and US dollar have strengthened against the euro recently, which you may find favourable for your money transfer to the Netherlands. That said, both Brexit and the Federal Reserve’s interest rate decision may affect the interbank exchange rates in the future, as well as the Eurozone’s economic developments, which you may find worth keeping an eye on.

Please note that the exchange rates within this article are interbank rates and are for indicative purposes only. This article does not constitute advice to any person on any matter and it is not intended as a recommendation to trade.


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