Euro likely to extend further gains in 2018, says Canadian Imperial Bank

The common currency is expected to extend further gains going into 2018, according to a recent report from the Canadian Imperial Bank. On track to cut back asset purchases later this month, the ECB is now on the precipice of a major shift. While not representing an actual tightening in policy, the slower pace of easing is a reflection of how far the economy has come since QE was announced.

That should support the euro which, despite recent strength, has regained only half of the losses incurred since early 2014. Domestic fundamentals support the ECB’s plans. The labour market looks more supportive of inflation, with wages beginning to percolate.

Industrial production continues to march higher. Even manufacturing PMIs are not reacting to the recent strength in the euro. ECB officials are also concerned that prolonged asset purchases could cause a buildup of financial imbalances.

"Of course political uncertainty is still hanging over the monetary union. Catalonia’s push for independence from Spain has caused some waves in the currency. But that could actually turn out to be a driver of strength if the region remains part of the country as we expect. All told, look for the single currency to gain steady ground in 2018, reaching 1.25 by the end of the year," the report added.

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