The euro had a good 2013. It was the undisputed champion of the major currency league, strengthening by 2% against sterling and by 3.5% against the US dollar. Whilst it would be silly to state categorically that the euro will be unable to repeat its achievement in 2014, the chances of it doing so are between slim and none.
Its two serious competitors will be sterling and the US dollar. Both Britain and the United States diluted their currencies in recent years by printing money to provide economic stimulus. With no similar stimulus measures taking place in Euroland (they are not permitted) the euro reaped the benefit of its non-involvement. But things have moved on. The Bank of England’s money-printing operation is long gone and the US Federal Reserve has begun to wind down its own programme. More importantly, the economies of Britain and the United States are on the road to recovery, perhaps as a result of that central bank stimulus – while Euroland continues to stagnate. In the third quarter of 2013 – the most recent figures available – the US economy expanded by 1% and the UK grew by 0.8%. During the same three months the Euroland economy expanded by a barely-perceptible 0.1%. Unemployment in Britain (7.4%) and the States (7%) is on the way down while in Euroland it remains close to a record high at 12.1%.
On the basis of current evidence it is difficult to argue that the euro should strengthen this year against the pound or the dollar. Whilst its recent resilience suggests it is unlikely to fall off a cliff, the euro is highly unlikely to maintain last year’s superiority in 2014.