Euro Expected to Weaken Over the Next Few Months

on June 14 2013 8:46 AM

The euro remained strong at $1.33 on Friday despite sinking government bonds which have been responding to concern that central banks around the world will pull back on their stimulus programs. Although bonds around the world have dropped, it seems that the weaker eurozone countries have been hit the hardest.

The recent drop led many to believe that countries like Spain, Italy, Portugal and Greece may see massive swings in their bond markets in the future. After the European Central Bank pledged to do “whatever it takes” to keep the eurozone together and support markets, bonds in those countries rallied and their yields improved. However over the past few weeks they have plummeted.

As central banks ease up on the cash they have been injecting into the market, the eurozone's weaknesses are likely to be exposed. The region's industrial competitiveness is lacking and the past few years of austerity and budget cuts have left bailout nations with sky high unemployment rates and low morale.

According to CNBC, the euro isn't expected to remain at $1.33 for long. Although the common currency has gained about 4 percent on the dollar since the middle of May, most aren't expecting its strength to hold up.

Next week, the US Federal Reserve is expected to meet and discuss whether or not to taper off its bond buying program. If the Fed does decide to cut back on its stimulus spending, the dollar will likely strengthen, and bring the euro down to $1.30.

In the long term, analysts see the euro heading as low as $1.25 as momentum for the currency fades. With data showing only the faintest glimmer of hope that the region's recession is nearing its end and the ECB hesitant to move forward with aggressive monetary easing, some are expecting the euro to weaken in the third quarter.

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