After a series of posts on the rise of the euro earlier in the year, I’ve been relatively quiet on this front of late. This doesn’t mean that the problem has gone away. The growing feeling that the US economy was taking off certainly eased the pressure, and the euro has hovered around the low 1.20s. Now it seems that with growing awareness that growth may be slowing large scale ‘currency trading’ is coming back on the agenda.

Trading on the world’s foreign exchange markets has leapt to a record $1,900bn a day, driven by renewed interest in currencies as an asset class and the return of hedge funds specialising in currency bets.

Turnover in currency and interest rate derivatives sold by banks also soared to new record levels, according to a three-yearly survey by the Bank for International Settlements……

After slumping amid the introduction of the euro, which eliminated the currencies of some of the world’s biggest economies, trade in foreign exchange bounced back between 2001 and 2004.
Source: Financial Times

There is once more a lot of talk around about the need to float the Chinese renmimbi (which is a move which should come in gradually, but which won’t have sufficient impact to resolve the problem IMHO).

Trying to see into the future is a pretty fruitless endeavour, but we should all be aware that any sustained weakening in the yen and the US dollar would almost kneejerk style bring the issue of a rising euro straight back on the agenda. Definitely one to watch.