The highest level since December 2014 was already reached in the morning with 1.2555 US Dollar. Last one euro costs 1.2530 dollars. The European Central Bank (ECB) had set the reference rate at $ 1.2493 on Thursday afternoon.
The triggers of the euro’s profits is the ever weaker US dollar. The dollar index, which puts the US currency in relation to other major currencies, fell to its lowest level since the end of 2014. This shows that the dollar’s weakness is broad.
Reasons for the weak dollar are not easy to find. Foreign exchange experts are partly in the dark. An attempt to explain the Commerzbank provides: the rising US government debt. For example, the tax reform and the new recently adopted budgetary framework should lead to significantly higher budget deficits towards six per cent of economic output.
Increasing deficits in economically good times are “extremely unusual” for the US, write the experts Bernd Weidensteiner and Christoph Balz in a study. “In Washington, apparently all fiscal inhibitions fall.”
Other experts see the dollar weakness primarily mood-driven. “The US dollar seems even less popular than expected,” write the foreign exchange experts BayernLB in a market commentary. Indeed, rising inflation and interest rate expectations as well as better sentiment on the US stock market should strengthen the dollar.
For its part, the euro is supported by the robust growth of the euro area economy. For this reason, the ECB is expected to make its still extremely loose monetary policy somewhat less relaxed in the near future. However, interest rate hikes are likely to take a long time to come, which is why the interest rate advantage of the dollar should initially be greater than smaller. This could limit the euro gains upwards.
On Friday, investors’ eyes are focused on the US. It publishes a series of economic data, including foreign trade price figures, housing market data and Michigan consumer sentiment. By contrast, virtually no economic data are available in the eurozone.