A selection Euro banknotes of varying denominations sit in this arranged photograph in Rome, Italy, on Tuesday, July 21, 2020. The euro has stayed below $1.15 even after European Union leaders finally agreed on a landmark stimulus package -- yet, this should not be interpreted as a sign of weakness. Photographer: Alessia Pierdomenico/Bloomberg
HOW much is too much of a good thing? The euro has strengthened 5% versus the dollar this year – a fair reflection of the European Union’s better handling of the coronavirus, not least its historic decision to create a pandemic rescue fund that will involve fiscal transfers from the wealthy north of Europe to the worst-affected countries in the south.
US Treasury yields have also fallen closer to zero, bringing them nearer to the eurozone’s negative rates, and America’s growth forecasts are starting to look similar to Europe’s. As such, there’s less reason for investors to keep so many eggs in the dollar basket. The problem for the European Central Bank (ECB) is that an overly robust currency might seriously hinder the continent’s fragile post-Covid recovery.
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