Euro outlook for the remainder of 2024: How to mitigate currency volatility 

The year so far has been a rocky ride for the euro, with monetary policy, political uncertainty and economic news all driving volatility in EUR exchange rates. 

The remainder of 2024 looks set to bring more dramatic swings, underscoring the importance for a solid business FX strategy. In this article, we look at what could impact the euro for the rest of the year and how businesses can mitigate currency risks. 

Eurozone interest rates 

Perhaps the biggest driver of movement in EUR in the coming months is likely to be the European Central Bank’s (ECB) approach to monetary policy. The ECB cut interest rates in June, following its recent record hiking cycle, but has since held back from further cuts. 

The bank has three more decisions during the remainder of 2024, in September, October and December. Markets are currently anticipating two more rate cuts over those three meetings, but a recent shock rise in Eurozone inflation and stronger-than-forecast GDP growth have sparked doubts. 

Monetary policy uncertainty led to some notable movements in EUR through the first half of 2024. If this uncertainty persists through to the end of the year then the euro may fluctuate. 

French politics 

Earlier this year, EU politics infused EUR with volatility. After sweeping gains for the far-right in the European elections, French President Emmanuel Macron gambled on a snap election. 

The move shocked commentators, and the euro slumped amid fears that the far-right National Rally (RN) party would win power and pursue ‘reckless’ fiscal policies. The election eventually led to a hung parliament, with a new left-wing alliance coming first with 188 seats, Macron’s centrists in second with 161, and RN trailing in third at 142 seats. 

Macron said his government would hold power until after the Paris Olympics, thereby delaying the political deadlock of a parliament unlikely to form a functioning coalition. 

What happens in the wake of the Olympics could impact the common currency, particularly in September when parliament reconvenes, France must agree a 2025 budget, and EU member states submit their medium-term fiscal plans to the European Commission. 

The potential outcomes include political paralysis, a coalition in support of populist policies, or a centrist alliance emerging and pushing for fiscal orthodoxy. Whatever happens, the uncertainty in the Eurozone’s second-largest economy may inject the euro with further volatility. 

Economic news 

Another key factor that will determine EUR movement over the coming months will be the health of the Eurozone economy. 

Macroeconomic data in the bloc has outperformed expectations in recent months, indicating that the Eurozone’s recovery is stronger than expected. Ongoing signs of economic resilience in currency union could support EUR in the months ahead. 

That said, Germany – the Eurozone’s largest economy – finds itself teetering on the brink of a recession after GDP shrank by 0.1% in the second quarter of 2024. The German economy is in crisis, as it has struggled to recover from the dual shocks of Covid and the Russia-Ukraine war. 

If the German outlook brightens then the euro could gain ground. Otherwise, the country’s troubles may be a drag on EUR exchange rates. 

How to mitigate currency volatility 

The volatility that has rocked the euro and the wider currency market looks set to continue through the remainder of 2024. Therefore, it’s vital that businesses with foreign exchange needs know how to mitigate this volatility and protect their profits. 

When it comes to managing FX risk, using currency hedging products is often the best strategy. There are two key currency hedging methods to help you mitigate risk: forward contracts and market orders. 

Forward contracts 

With forward contracts you can fix the current exchange rate ahead of making a transfer, providing you with a predictable cash flow. You’ll know exactly how much you’ll send and receive in the required currencies, allowing you to budget and forecast with accuracy. 

This predictability also means there are no nasty surprises. While you won’t benefit if the exchange rate improves, you are safeguarded against any adverse movements in the currency market. 

Furthermore, if you use forward contracts strategically, there are significant opportunities to maximise your profitability. By locking in a strong exchange rate, you could save a substantial amount of money on future transactions. 

Market orders 

Market orders work by targeting a specific exchange rate and automatically executing the transaction if the market reaches that level. You can use limit orders and stop loss orders, or pair the two. 

Limit orders 

With a limit order, you target an exchange rate higher than the current market level. This gives you the potential to benefit from favourable market movements, even outside of office hours. 

Stop loss orders 

Set a worst-case exchange rate and your transfer will automatically go through if the market moves to this point, protecting you from further losses. 

Paired orders 

You can place market orders in pairs, therefore allowing you to take advantage if the exchange rate strengthens while knowing that your business is trading within a comfortable range. 

Personalised risk management 

Currency hedging can seem complicated if you’re new to it. But at Currencies Direct, we make it simple. 

With dedicated account management from a currency expert, you’ll receive tailored guidance to help identify risks and opportunities. Our team will work with you to develop a strategy, execute it, and continually evaluate and adapt it as your needs and the market change. 

Contact us to find out more and start mitigating your exposure to currency risk.