about 2 years ago • 1 min
An important driver of the strength of one currency versus another is the difference in economic growth between the two countries. As one of the economies grows faster, more investment opportunities open up, more capital flows into the country, and its currency climbs in value relative to the other.
But that hasn't been the case for the euro-dollar since November. The European economy has outperformed its American counterpart over that period, with the EU-US surprise index – which tracks whether the regions beat or miss economists’ economic growth forecasts – climbing from the year’s lows. The odd thing is, the euro has all the while remained weak against the dollar, languishing well below that measure of economic growth.
It’s hard to say exactly why, but it might be down to the threat that the Russian-Ukrainian conflict poses to the euro, given Europe’s reliance on energy prices and geopolitical stability. That could present an opportunity if the situation takes a turn for the better: the return of peace might just be the catalyst the euro needs to catch up with Europe’s economic outperformance.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.