Can Euro Sustain Its Rally? Unlikely

The 16-nation European currency showed the strong performance this summer, just as most traders lost any confidence in the currency. The questions, which of course sits in many minds, is: can the euro sustain its rally? Everything can happen, as the euro showed by its rally, but few economists believe that the currency will continue its rally for the long time.
The main reason for the concerns is the austerity measures, taken by the European governments to prevent their nations’ economies from spiraling further into the debt. The fiscal measures were helping Europe’s economy for now and were boosting the confidence in the euro. Yet many experts think that the austerity is very bad for the economic growth and it may show its darker side very soon.
The European Union’s gross domestic product is expected to rise by 1.5 percent in 2010, compared to the previous estimates of the growth by 2 percent. It’s even worse than the US economic growth, which also shows signs of the slowdown. The traders think that it’s because the US government prefer the economic stimulus, while the EU leaders lean to the austerity measures, some would say too fanatically.
The EUR/USD currency pair may rise to as high as 1.33 this month, but it’s expected to decline to 1.21 by the year-end. The Great Britain pound may also be weakened by the budget cuts, but it gives more reasons for optimism, therefore the sterling is likely to continue its rally against the euro. The Japanese yen will definitely profit from falling confidence in the shared European currency, causing EUR/JPY to fall below 110.00.

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