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Europe is putting on a little sample of a high class problem: the disadvantages that lead to the operation of a reserve currency that hits the world.
For now, the continent is not in this luxury place. The euro represents a much smaller portion of the cash accommodation maintained by the central banks and similar entities throughout the world than the dollar, and its prevalence in global trade is insignificant compared.
Even so, policy formulators clearly have their eyes in the prize of a reinforced paper for the euro, and it would be reckless to bet against him. On equal terms, this means that the euro is on the way.
A warning about what this could mean wine from Scott Besent, secretary of the United States Treasury, who said this month that Europe “should be careful with what they want.” If the euro increases as high as $ 1.20 (it is now around $ 1.17), “Europeans will be crazing that it is too strong,” he said. In fact, the graznido is already underway.
The euro has been one of Donald Trump’s biggest beneficiaries in the dollar this year. All main currencies have been appreciated against the dollar, but the euro more than most, more than 13 percent in 2025 so far.
In part, this is due to the trade of the European Renaissance, which covers both the “moment of the global euro” of the European president of the Central Bank, Christine Lagarde and the possibility of an expected economic growth revival derived from Germany’s decision to stop worrying and increase fiscal spending.
However, it has another curious cause. Share investors around the world are unusually interested in protecting themselves from greater weakness in the dollar, a risk that had been quite reasonably ignored. For fund administrators based in small economies, this can be expensive and uncomfortable in their violin in the local currency. A shortcut is just buy euros, and analysts say that is precisely what they are doing, regardless of where these investors are.
All this is good and good for those fund managers in shares, but in financial markets, we cannot have good things. Someone has to feel the pain. In this case, it is corporate Europe, exporters in particular, who are chopped by the rise of the euro against the dollar and the Renminbi, which makes European exports more expensive abroad.
Barclays researchers point out that the strength in the euro is one of the main reasons why analysts have been reducing profit expectations for European companies listed this year. The prospects for growth in earnings per share have decreased from 9 percent to 2 percent, and export companies remain far behind their peers focused on the national level in their performance in the price of shares so far this year.
“Usually, the strength of the euro if it comes with a stronger growth backdrop such as in 2017 or 2020-21, so it is not a great wind against,” Mrossh Kumar said in the bank. “This time we are seeing a weaker growth backdrop in [the second half of the year] of the tariff impact and a stronger euro simultaneously. So it is a double blow to the profits. “With several national indexes of European shares in more than 20 percent so far this year, it is not difficult to imagine the euro fort to stop the brakes here.
The ECB officials are also becoming a bit agitated. One euro too strong depresses import prices while hindering exports, dragging inflation. This puts the plates in a link. They do not want to sign up for specific exchange rates, which puts a goal in their back and, in any case, is a cup game given the volatility of currency markets. But they often want to gently massage the lowest currency with a series of winks and nods. This is an awkward road, as the Central Bank found in the years after the great financial crisis of 2008, when the euro swing around $ 1.30 and $ 1.60.
Now, as the Vice President of the ECB, Luis de Guindos, said this month, “we should try to avoid any type of overimeter” in the euro against the dollar. Stretching significantly higher from here, he said, “complicated.”
In fact, the ECB has already cited “a stronger euro” as a contribution in the decision to reduce interest rates in a percentage point in June, set in downward revisions to inflation projections. Without the increase in the euro, this cut may never have happened.
At this time, the conditions in the currency markets are ordered, the dollar is drifting instead of failure, and the euro exchange rate is annoying instead of alarming. Cry the next large round, $ 1.20, surely the temperature will increase. He feels like a matter of when instead of himself.
katie.martin@ft.com
