The euro looks doomed to grind lower, yet there are reasons to expect a shift in fortunes as the dollar’s outperformance fades
The euro area is stuck in a deepening economic quagmire. An export-dependent and manufacturing-heavy growth model is coming under strain as geopolitical tensions keep energy prices elevated, China moves up the value chain and dumps excess industrial capacity into the rest of the world, and the US becomes more isolationist. Domestic political dysfunction is worsening, productivity growth is sluggish, and growth remains lacklustre, trailing far behind the US. Against this backdrop, the odds are stacked against the common currency. The European Central Bank, responding to deteriorating growth and inflation prospects, is seen slashing rates to 2% or lower in the...