Expensive Euro Forces Traders To Expect Decline

By some measures, the euro is at its most expensive level on record, potentially setting itself up for a fall if it starts to undermine the euro-area economy and forces the European Central Bank (ECB) to turn dovish, Aline Oyamada and Dayana Mustak reported for Bloomberg.

Photo Insert: The euro trades near a 17-month high versus the dollar, up more than 18% since falling below parity with the greenback in September and also shot up against the yen and recently jumped versus the pound.

The common currency’s so-called nominal effective exchange rate, which compares it to the currencies of the euro area’s trade partners, has never been stronger. It’s also near its highest level against the yuan in three years.

The euro trades near a 17-month high versus the dollar, up more than 18% since falling below parity with the greenback in September and also shot up against the yen and recently jumped versus the pound.

The euro’s strength is “absolutely” a concern for the ECB, said Mark Dragten, head of discretionary FX at Insight Investment.

“Europe sells a good deal of product to China,” he said. “You have to wonder about demand when the Chinese economy is slowing.” Though the ECB looks at a range of currency measures beside the nominal effective rate, the common currency’s gains are starting to look precarious.

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