1 Euro 1.20 Dollars…11% rise
Investment attractiveness to boost capital inflow
Concerns over weakening export competitiveness also increase
Although Europe is seeking to expand its role in the international financial market, it faces a dilemma that its success could lead to a surge in the exmodify rate, Reuters reported on the 29th (local time).
Amid the recent weakening of the dollar, the euro has risen more than 11% against the dollar this year, rising to around $1.20 per euro. This is the highest level in four years. The trade-weighted euro index, which reflects the currencies of the eurozone’s major trading partners, also rose more than 7% in a year to an all-time high. This is the result of a combination of double-digit strength against the Chinese yuan and the Japanese yen as well as the dollar. The trade-weighted euro index is not simply comparing the value of the euro to a specific currency such as the dollar, but is an index that combines the currencies of the eurozone’s major trading partners and averages them according to their weight (trade volume).
As a result, tensions are growing between the European Central Bank (ECB) and the indusattempt. The strong euro has a positive effect on increasing the investment attractiveness of European assets and promoting foreign capital inflows, but at the same time, it weakens export competitiveness and increases downward pressure on prices. Inside the ECB, concerns have been raised that if the euro continues to strengthen, inflation could fall below its 2% tarreceive and manufacturing exports could be hit.
The ECB has stated that the benchmark interest rate is at a “generally neutral level,” but the recent surge in the euro has led to a series of remarks wary of “excessive strength.” The possibility of additional interest rate cuts is also being discussed again in the market.
Reuters analyzed that these European concerns resemble the situation in the U.S., which seeks to reorganize trade and re-industrialize through weak dollars. ECB President Christine Lagarde has emphasized the idea of a “global euro” over the past year to build the euro a key reserve currency after the dollar, but the higher the international status of the currency, the harder it is to avoid the price of rising exmodify rates.
However, some declare that the strong euro is not necessarily negative. This is becaapply it has the effect of lowering the cost of energy denominated in dollars and reducing the borrowing cost of European governments with high financial burdens through easing financial conditions. In particular, it is analyzed that a strong euro could assist raise capital at a time when trillions of euros are requireded to strengthen defense capabilities, invest in high-tech technologies and build eco-friconcludely transitions.
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