The euro has been buffeted recently by concerns about protectionism, which have caused it to strengthen, and softer economic data, which have caused it to weaken. While the risks of an all-out trade war have risen, we still think that negotiations will ultimately be successful. So we doubt that this will put a significant amount of sustained pressure on the single currency in either direction.
Instead, we think that the outlook for the economy and monetary policy suggests that the euro has further to rise this year and next. The ECB looks set to end its asset purchases in December and begin raising interest rates in the second half of next year. While we also expect the US Fed to increase interest rates in the first half of 2019, we forecast economic growth in the US to slow in the second of the year. This would prompt speculation about interest rate cuts and push the dollar down against the euro.
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