Very much under the radar, the euro has put in a solid rally. The common currency of the EU started off 2018 with a 4.3% rally only to fall 8.3% from the highs. It has since rallied from those low almost 2.4% to only be down 2% on the year as of this morning. The EUR/USD has rallied 5 of the last 7 sessions and 4 of the last 5 weeks. Early on the rally was driven more by dollar weakness but that has changed. There is actually a "buy-the-euro" sentiment building in the last week or so.
Is the Euro Strength Real?
The ECB is may be strengthening the euro at a time when currency weakness might be a better prescription. Threatened tariffs on EU automakers (i.e.; Germany) could be offset somewhat by a weaker euro, softening the blow to higher prices that tariffs will almost certainly bring about. Last weak, however, Bloomberg published an article titled “Some ECB Members See End-2019 Rate Hike as Too Late” by Alessandro Speciale and Jana Randow stating that “Some European Central Bank policymakers are uneasy that investors aren’t betting on an interest-rate hike until December 2019, according to people familiar with the matter.” The article went on to claim that asking not to be named have stated “A move in September or October next year is (in) the cards”, which the market had not been pricing in. This morning ECB Governing Council member Ewald Nowotny said “rising oil prices may lead to higher inflation” and while this type of inflation certainly wouldn’t cause the ECB to accelerate rate hikes, it certainly would not slow them down.
At the end of the day, the only opinion that matters in the euro chatter is Mario Draghi’s and he speaks today, so if we are going to get clarity on whether or not this euro resurgence is real, it may happen today.