It’s the Euro’s Turn to Rally

The dollar may have had its day and the euro is ready to roll. Bloomberg Markets write that it’s the Euro’s turn to rally.

Instead of betting on the dollar and better economic growth in the U.S., currency investors are coming to terms with the possibility that the dollar’s best days are behind it after three years of record-breaking strength. More and more, traders are starting to count on the euro to take the dollar’s place as the overarching trade of the $5.1 trillion market.

with fading political risks, a recovering economy and economists starting to see the scaling back of quantitative easing on the horizon – just like they did for the Federal Reserve in 2014 – the euro may begin a multi-year appreciation that’s a copycat of the dollar.

Investors have been loading up on euros in the most recent quarter as the prospects of a US economic stimulus boom are fading. The EU was late to use quantitative easing and now late to back off but the effects of backing off will likely be the same as seen in the USA with the promise of higher interest rates driving the euro skyward.

Not All Bad for the USA

The USA could always use a little help in selling to foreign markets and a stronger euro and European economy would be just the thing. Business Insider writes that a strong European economy is good for the USA. Angela Merkel is pushing this concept as an antidote to Trump inspired protectionism.

A strong European economy is good for the United States, Chancellor Angela Merkel said on Wednesday, citing the post-war Marshall Plan with which Washington invested in Germany to stress that trade can bring “a win-win situation”.

“George C. Marshall was convinced that good trade and a strong economy in Europe is good for American companies too – and we should not forget about this,” she said in a speech to The German Marshall Fund of the United States.

It was protectionism more so than the 1928 market crash that brought on the Great Depression.

“Protectionism, isolationism impedes innovation and in the long-run this is disadvantageous for everybody especially for those who count on isolationism even if they use different terminology for this,” Merkel added, according an official translation into English of her remarks made in German.

In 2012 we wrote about the expansion of US manufacturing based on a cheap dollar and more competitive US products.

United States manufacturing expands for the thirty-first month in a row according to the Institute for Supply Management’s report for February. As United States manufacturing expands so does the overall economy. Unemployment has been going down for half a year and the nation added a quarter of a million jobs in February according to the Department of Labor. The threat of US dollar deflation has been successfully handled by the policy of the United States Federal Reserve.

It’s the euro’s turn to rally based on economic growth and higher interest rates. In the end this will help US manufacturing and the US economy until the political will arises in Washington to start fixing infrastructure.