December has historically been the euro’s strongest month, with constant beneficial properties pushed by US greenback weak point. Nevertheless, political instability in Europe, US tariff threats, and world geopolitical tensions could problem the euro’s normal seasonal rally this 12 months.
December has traditionally been the strongest month of the 12 months for the euro, with the one foreign money gaining a median of 1.6% towards the U.S. greenback over the previous 24 years.
Historic information reveals that 71% of the time, the euro ends December in constructive territory, extra ceaselessly than in another month.
But, as we enter the ultimate month of 2024, a mixture of US and European political developments might threaten this well-established sample.
Why does the euro rally in December?
Amongst world currencies, the euro stands out as a December winner, constantly capitalising on the US greenback’s seasonal softness.
Over the previous seven years, the euro has gained floor each December, extending its streak of December victories.
The subsequent-best month for the euro is April, which sees a median achieve of simply 0.5% – a 3rd of the December common.
A lot of this seasonal power has much less to do with eurozone-specific elements and extra to do with US tax laws.
American firms sometimes cut back their greenback holdings at year-end by transferring funds abroad to handle their tax liabilities. This lowers greenback demand in December, not directly lifting the euro and different main currencies.
Nevertheless, the seasonal softness of the US greenback is barely a brief phenomenon.
On common, the US Greenback Index – a currency-weighted measure of the buck’s power – declines by 0.91% in December however surges by 0.88% in January, as US firms repatriate funds after year-end tax planning.
This January rebound is the strongest for the greenback throughout all months.
How different currencies stack up in December?
The seasonal sample extends past the euro, as most main and minor currencies are inclined to strengthen towards the greenback in December. The British pound, for example, has traditionally gained a median of 0.4% towards the greenback in December, ending the month in constructive territory 58% of the time over the previous 40 years.
Equally, the Australian greenback averages a 0.4% achieve throughout this era, benefiting from improved danger sentiment and seasonal greenback softness.
The Japanese yen additionally reveals modest beneficial properties, sometimes strengthening by 0.3% on common in December, reflecting decreased greenback demand.
Even smaller European currencies just like the Hungarian forint, Polish zloty, and Czech koruna exhibit outstanding December performances.
The forint beneficial properties a median of 0.8%, the zloty strengthens by 1.3%, and the koruna leads with a 1.4% common rise towards the greenback.
Dangers to December 2024’s euro seasonal sample
The euro and different currencies could face vital challenges in sustaining their normal December power this 12 months, as political and financial dangers weigh closely on each side of the Atlantic.
In 2016, Donald Trump’s surprising election victory disrupted December’s seasonal foreign money tendencies, resulting in a 0.67% decline for the euro. An identical dynamic might unfold in 2024, as the specter of sudden tariff bulletins resurfaces. Such coverage uncertainty could discourage US firms from transferring {dollars} abroad, a key driver of December’s greenback weak point in earlier years.
Including to the challenges is heightened political instability in Europe. Germany and France, the eurozone’s two largest economies, are grappling with home uncertainties forward of their 2025 elections. Germany is contending with a fragmented political panorama, whereas France faces escalating labour strikes and social unrest. These points might dampen investor confidence within the eurozone, lowering demand for the one foreign money.
Geopolitical tensions additional complicate the outlook. The continuing Israel-Hamas battle, the protracted Russia-Ukraine struggle, and considerations over China’s fragile financial restoration are prone to bolster the US greenback as a worldwide protected haven, limiting its typical seasonal weak point in December.
This distinctive confluence of dangers casts doubt on whether or not the euro – and different main currencies – can replicate their traditionally robust December performances in 2024.