Earlier today I posted an article in the links on the euro’s move up to a 14-month high. As I write this, the euro is trading a 1.3568 to the US dollar, up markedly from 2012’s low during the sovereign debt crisis of 1.2063 on 25 July.
And there’s a big reason for this.
Looking into my archives from that period, I see articles like “More on the euro disaster and current account imbalances” from Randy Wray on 17 Jul, “German – Spanish 10-year spread reaches record 610 basis points” from 20 Jul and “On Spain’s death spiral, regional bailouts and Germany’s ability to profit from crisis” from 22 Jul. It doesn’t take a rocket scientist to figure out that euro weakness is directly related to the sovereign debt crisis then. In fact, the euro bottomed on the very day that Mario Draghi announced that he would do “whatever it takes” and has since appreciated 15 cents to its present 1.35 level.
So, it’s clear that euro strength is inversely correlated with the severity of the sovereign debt crisis, something that presents euro policy makers with something of a dilemma.
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