Tensions Arise in the Eurozone

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With tensions rising over trade disputes and the strengthening of the euro, the economy in the Eurozone has started to slow down. Taking into account all global market events, the European Central Bank (ECB) is now contemplating rate movement and rethinking its decisions on proceeding forward. Analysts have also dialed back their forecasts for when the ECB might increase short-term rates this year.

Trade disputes have been an important concern for the central bank because the Eurozone was successfully able to escape the trenches of a major debt crisis through the strong export system around the world. The Eurozone exported goods and services worth 44% of its economic output last year and had plans to do the same going forward. With the recent news on President Trump’s plan for tariffs, the Eurozone could face some headwind with its export business. Rising tensions around U.S. tariffs and an appreciating currency against the dollar has resulted in a temporary slowdown on rate adjustments within the Eurozone.

President Mario Draghi claims, “the banks will move only cautiously to withdraw its large monetary stimulus in light of trade disputes and a volatile currency. We are aware that an escalation of protectionist threats from the United States would dampen-growth everywhere and the recent uncertainty is probably already having some negative effects on investments.”

The ECB is set to meet this week to discuss current economic conditions and its next steps to decimate any major slowdown. Investors are planning on waiting for a potential rate hike to the second half of the year given the current ECB contemplation on short-term rates. The strengthening of the euro, which has appreciated roughly 15% against the dollar last year partly reflects U.S. policy decisions going forward. Investors are worrying about the Federal Reserve’s plan to offload balance sheets and its current budget deficits. As of now, the Euro and Yen might be safer options for investors looking into safer investments to diversify their portfolio with global currencies.

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