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The ECB is losing the currency wars

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.

EURUSD 2013 01 29

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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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.