Euro Bears Are Being Forced To Retreat As Euro Gains Substantially Against Nine Other Developed Country Currencies

Monday, September 17, 2012 07:08
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Euro Bears Are Being Forced To Retreat As Euro Gains Substantially Against Nine Other Developed Country Currencies

Tags: euro | European debt | world economy

In his efforts to secure the future of the euro, European Central Bank (ECB) president Mario Draghi has defied his predecessors. The currency has since gained against 16 other major currencies and is forcing naysayers predicting the demise of the euro to retreat.

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Over the three-year period before Draghi became president, the ECB limited purchases of distressed Eurozone members’ debt. The crisis deepened continually over that three years.
 
Draghi has done the opposite. He assured the investing public that the ECB would do everything possible to support the euro and he has come through on that promise. The long-debated European Stability Mechanism (ESM), a permanent source of funding designed to maintain the unity of the euro, is becoming a reality.
 
His ability to succeed in assuring the euro’s future is placing doubters such as former International Monetary Fund Chief Economist Kenneth Rogoff on the wrong side of the market as the euro climbs in value.
 
Draghi has softened the position of his predecessors who insisted that senior bondholders of distressed country debt should not suffer any losses during bailouts.
 
Leading investors who doubted the euro’s viability as recently as early summer are now buying the currency. The euro is not completely out of trouble, but the chances of a breakup in the euro by the end of 2013 retreated from over 60% at the end of July to 50%.
 
The highest estimates for the euro call for a value of $1.35. The average value of the euro since its creation in 1999 has been about $1.21.
 
The euro has been the largest gainer against nine other developed country currencies, gaining 3.6% over the past month.

Along with the recent Federal Reserve promise to do whatever it takes to rein in unemployment, the strengthening of the euro should also go a long way toward helping the US economy strengthen its recovery.

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