Business World

Friday 19 January 2018

Euro rises from ashes after market sees it as a safe haven

The euro is poised for its biggest quarterly advance since December 2008
The euro is poised for its biggest quarterly advance since December 2008

Mariko Ishikawa, Masaki Kondo and Hiroko Komiya

THE euro region's record current account surplus and slowing inflation are giving its shared currency the kind of strength that has made the yen a haven in times of financial and economic turmoil.

The euro is poised for its biggest quarterly advance since December 2008, gaining 5pc against a basket of 10 major currencies since the end of March, according to Bloomberg.

Its resilience surprised analysts who predicted last December that the 17-nation currency would end the second quarter at $1.28, compared with the $1.31 it was at yesterday in New York.

While the eurozone suffers from the longest recession on record, its currency is benefiting from an increase in foreign investment as wages fall and consumer-price gains slow.

That's reminiscent of Japan, whose current-account surplus made the nation less reliant on foreign capital and outweighed the weak economy to help the yen surge more than 60pc between 2007 and 2011 during the financial crisis.

RESILIENCE

"The euro's resilience can be explained by the currency's Japanification," said Daisuke Karakama, a market economist at Mizuho Corporate Bank. "When there's a crisis it may cause shifts of capital in the countries within the region, but it's a storm in a teacup for the shared currency because there are no outflows abroad."

Mr Karakama, who has worked at the directorate general for Economic and Financial Affairs at the European Commission, said the euro may reach $1.35 by year-end.

While the euro weakened 1pc versus the dollar this year, it has appreciated 4.9pc against its developed- market peers, the best performance after the greenback's 6pc gain, Bloom- berg figures show.

America's currency surged following comments by Federal Reserve chairman Ben Bernanke on June 19 that the central bank could slow the pace of bond purchases if the economy showed sustained signs of improvement.

Irish Independent

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