The euro continued to gain against the US dollar this morning, and may test the $1.3000 level today.
As the financial landscape in the eurozone continues to ease, investor confidence in the euro is returning, while at the same time appeal for the US dollar is starting to fade. If you consider the barrage of negativity the euro endured during May and June – including the possibility of the euro currency being disbanded – it is not too farfetched to expect the euro to bounce back, considering the recent positive developments in Europe. However, it is how fast the euro has rebounded that has caught investors unaware. This is largely due to the slip in confidence towards the US economic recovery, reiterated by yesterday’s swathe of weak economic data and the FOMC’s comments earlier in the week which were far from optimistic. Coupled with growth slowing in China, and Japan struggling with a weak political system and unsustainable debt, all of a sudden the eurozone doesn’t look so bad. The euro may also benefit if China begins to move away from holding US treasuries and takes up larger positions in the euro and yen as they manage their ‘de-pegged’ renminbi against a basket of currencies.
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