The euro’s rise to $1.20 is a major development, argue ProFinance analysts, as it reflects the confrontation between the Old and New Worlds.
The reasons for the strengthening of the euro to the mark of 1.20 dollars per dollar are manifold. First, traders always pay attention to round numbers, and this level has become another important frontier for the currency, which has gained about 13% in the past year, posting its best result since 2017.
European Central Bank (ECB) Vice President Luis de Guindos has previously called $1.20 a pain threshold for the dollar. However, the path to this mark was not easy: in September, the euro approached it, but then weakened amid the dollar’s recovery.
Historically, the $1.20 level is only slightly above the euro’s average since its introduction in 1999, but it is well below the $1.60 the currency reached in 2008.
The euro’s rise is due to several factors. First, U.S. President Donald Trump’s confrontation with allies over trade issues, the situation in Greenland and criticism of the Federal Reserve have weakened the dollar. Second, speculation about joint interventions by the US and Japan to stabilize the yen led to a general decline in the value of the dollar.
On Tuesday, when asked if he thought the dollar had fallen too far, Trump said its value was “excellent.”
Efforts to bolster eurozone security, long-term economic growth strategies in Germany and a desire to diversify the economy away from dependence on the dollar have also played a role, financiers said.
Currency fluctuations have already affected and may yet affect the cost of external borrowing for the Moldovan economy, whose U.S.-denominated debt burden will depend on further jumps in global currencies.
The euro may strengthen its position, but is unlikely to replace the dollar anytime soon. The dollar accounts for just under 60% of global foreign exchange reserves, while the euro accounts for about 20%. US dominance in global trade and developed capital markets make it unlikely that this situation will change significantly in the near future.
ECB President Christine Lagarde notes that inconsistent U.S. economic policies could give the euro an opportunity to play a larger global role. However, to do so, the bloc needs to resume the process of finalizing its financial architecture, which has stalled.
