Euro Breaks $1:20 Barrier

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I’ve been reasonably quiet about the evolution of the euro during the last couple of weeks. The movement has been a pretty volatile tug-of-war between the general downward drift, and resistance to change. Today there seems to have been a decisive push on one side (maybe because it was a Friday afternoon on a holiday weekend), and the currency seems to have decisively broken the $1:20 level.

There are various reasons why this might have happened, in particular the Federal reserve quarter point rise yesterday plus good manufacturing data and consumer confidence readings for the US economy. And this despite a little bit of rather better news on the eurozone economy front (here, here) . As I have been saying, this is going to be an assymetric process: good news on the US front, or bad news on the eurozone one will always dominate given the underlying fundamentals, and the weaknesses revealed by the constitution votes and the dithering on the SGP. Next frontier: $1:15 probably, but I have no idea how long it will need to get there. It depends on the flow of news. Meantime the fall has pluses and minuses. It will help exporters, but the rise in oil prices will be compounded, and this will only hinder any possible revival in domestic demand.

This piece is a fair and reasonable assessment of the state of play to date.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".