Posted on Dec. 2020 at 15:06
The euro continues to advance against a weakened dollar. On Wednesday, the euro gained 0.4% to 1.2195 dollars after crossing the threshold of 1.22 dollars to 1.2215 dollars during the day, its highest level since April 2018. In early 2018, the euro had crossed $ 1.25 to $ 1.2510. The European currency has gained 8.7% against the greenback since the start of the year. It was stable on Wednesday against the pound sterling at 0.9020 pounds, as well as against the Japanese currency at 126 yen.
Since the meeting of the European Central Bank on December 10, the exchange rate of the euro against the currencies of its main trading partners has increased by 0.3%. “The asset buyback plan to fight the pandemic is too modest in size” says Robin Brooks, chief economist at the Institute of International Finance. The previous support plans had helped to lower the euro. The low level of interest rates discouraged foreigners from buying European bonds and even encouraged them to sell them. European investors had sold their securities to the ECB and to invest in more profitable foreign bonds.
This flow dynamic unfavorable to the euro is normalizing and easing. The latter 12 Europeans bought even more foreign bonds than foreigners bought European bonds with a spread of 75 billion euros.
Inflation in the euro zone is likely to remain permanently lower than its American counterpart, which will promote the strength of the euro against the dollar. The European currency would experience a Japanese-style scenario (low growth and inflation).
The dollar is losing 6.4% this year. It could continue its decline in 2021 thanks to new easing measures announced by the Federal Reserve.