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Europe gets a small runny nose of a high -class problem: the disadvantages that go hand in hand with the operation of a world fittings reserve currency.
The continent is currently not quite in this luxury location. The euro is a much smaller piece of the cash stock managed by central banks and similar companies worldwide than the dollar.
Nevertheless, political decision -makers clearly have the price of A in mind solemn role For the euro, and it would be unclear to bet against it. All things are the same, this means that the euro is on the way up.
A warning, which could mean everything, came from Scott Bessent, US Finance Minister, the one who said this month that Europe should “be careful what they want”. If the euro increases up to 1.20 US dollars (it is now around 1.17 US dollars), “the Europeans will be able to be too strong,” he said. In fact, squawking is already underway.
The euro was one of Donald Trump’s greatest beneficiaries after the dollar this year. All important currencies have valued the money, but the euro more than most others, by 2025 by over 13 percent.
This is partly due to the European Renaissance trade, which both comprises the European central bank president Christine Lagarde “Global Euro moment” And the possibility of a long -awaited revival of economic growth, which corresponds to Germany’s decision, no longer worry and increase tax expenses.
However, it has a different strange thing. Equity investors around the world are unusual to protect themselves from another weakness of the dollar – a risk that they had been quite ignoring so far. For fund managers in small economies, this can be expensive and cumbersome in their fiddling home currency. A link is only to buy euros and analysts say that this is exactly what you do, regardless of where these investors are based.
All of this is good and good for these fund managers in stocks, but we cannot have nice things on the financial markets. Someone has to feel the pain. In this case, it is corporate Europe, in particular exporters who are stung against the dollar and Renminbi by increasing the euro, which makes European exports more expensive overseas.
Barclay researchers point out that the strength in the euro is one of the main reasons why analysts have reduced the winning expectations for listed European companies this year. The prospects for the growth of profit per share dropped from 9 percent to 2 percent, and the export of companies was far behind their domestic colleagues in their previous share price performance this year.
“Usually the euro strength is not a big headwind if it is equipped with a stronger growth culperation as in 2017 or 2020-21,” said Magesh Kumar from the bank. “This time we look at a weaker growth owl in (the second half of the year) from the tariff impact and a stronger euro. With several national European stock indices this year by more than 20 percent, it is not difficult to imagine that the strong euro uses the brakes here.
ECB officials are I also get a little twitching. An overly strong euro depresses import prices and at the same time hinders exports and drags inflation. This puts the speed stomach into a bond. You do not want to strive for certain exchange rates, which brings a goal on your back, and it is definitely a game of a mug given the volatility of the currency markets. But they often want to massage the currency gently with a series of wink and nod. This is an unpleasant way, as the central bank found in the years after the great financial crisis of 2008 when the euro rose between 1.30 and 1.60 US dollars.
Now, as the ECB Vice President Luis de Guindos said this month: “We should try to avoid any kind of overwhelming in the euro compared to the dollar. It would be” complicated “.
In fact, the ECB has already cited “A stronger euro”As an input in the decision to reduce the interest rates in June by a quarter percentage, the downward complaints of the inflation prelude. Without the euro, this cut may never rose.
Currently, the conditions are arranged in the currency markets, the dollar drives lower than cancel, and the exchange rate of the euro is rather annoying than completely alarming. The next big round number – 1.20 US dollars – will almost certainly turn on the temperature. It feels like a question if it is more like.
