The euro could face turbulence for the rest of 2024 as the currency is left reeling as France plunges into political chaos and the ECB remains on course for another rate cut.
This is the analysis of Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organizations, following an unexpected victory by a left-wing coalition, which includes the Socialists and the far-left France Unbowed.
He comments: “The shock outcome has stoked fears over France’s financial stability, sending the euro tumbling by as much as 0.4% before making a slight recovery.
“With no party securing an outright majority, the political gridlock is poised to stymie effective policymaking and progressive reforms.
“Although markets might find some comfort in avoiding a far-right triumph, the fragmented vote means legislative paralysis is a real threat.
“Adding to the euro’s woes, the European Central Bank (ECB) is widely expected to go ahead with another interest rate cut, following one in early June.
“Rate cuts will weaken the euro by making it less attractive to investors seeking higher returns.”
Given the euro’s uncertain outlook, investors should consider five strategies to safeguard their portfolios.
First, reducing reliance on the euro by investing in more stable currencies such as the US dollar and Swiss franc can mitigate risks associated with euro volatility.
Second, utilizing currency-hedged funds can also protect against currency fluctuations, offering a safer investment option amid euro depreciation concerns.
Third, assets like gold and other precious metals traditionally perform well during economic uncertainty, serving as a hedge against currency weakness and inflation.
Fourth, working with a financial adviser will help you sidestep the risks associated with the volatility.
And fifth, investing in emerging markets that have less correlation with the Eurozone can offer growth opportunities and diversification benefits, reducing the impact of euro depreciation.
Nigel Green concludes: “The euro faces a challenging year ahead, beset by political instability in France and the ECB’s proactive rate-cut strategy.
“As 2024 progresses, vigilance and adaptability will be key to protecting investments and seizing opportunities amid the euro’s tumultuous predicted medium-term trajectory.”
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