Euro / Dollars

Why is the Euro so strong?

A couple years ago there were widespread expectations of a Euro-zone breakup. Greece was facing ejection, and when small nations like Estonia joined the Euro, the biggest question was, “Why?” Many observers expected the Euro exchange rate to go to parity with the Dollar, or lower.

But that never happened. In spite of Europe’s entering a second recession a year ago or so, the currency has been remarkably stable. At its weakest, it was about $1.20. Now it’s $1.32, and has been near that level most of the year.

Some credit the ECB’s bank support—providing long-term financing for banks throughout the system. Others look to the Euro-zone’s current-account surplus, a fruit of the zone’s fiscal austerity. But it seems to me that the answer is much simpler: interest rates. Rates in the US are near zero, overnight rates in Europe are 0.50%. Investors can earn more, risk-free, sitting in Euros. It costs them money to bet against the currency.

So the Euro has been stable, in spite of all the negative expectations. While the common currency may have issues, reports of its death were greatly exaggerated.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-07-23T10:42:51+00:00 July 23rd, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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