During this tumultuous week in politics, the Euro holds its ground as the US dollar retreated into its shell. The euro is not only the best performing currency in the world, but it also has the highest yields among major currencies. The European Central Bank has embarked on a path to increase borrowing costs and it is no surprise that the currency has climbed in value. In fact, the Euro has held on to its gains against the greenback since last Friday, although the latest jobs numbers may have dampened sentiment.
The ADP National Employment Report showed that private employers added 169,000 jobs last month, a number that is far smaller than the economists’ estimates. The S&P 500 and FTSE 100 were a little shaky, but the European equity markets blasted ahead. The DAX in particular was up 0.3 percent. In a related move, the Reserve Bank of New Zealand reappointed its chief, Adrian Orr, for another five years.
The STOXX 600, the benchmark for the European stock market, was up 0.2%. In fact, it’s up more than 1% since the beginning of the year. The S&P 500 e-minis eked out a tiny gain, while the FTSE 100 was up less than a point. The EUR/USD had managed to hold its ground throughout the Asia session, while the dollar index was on the verge of its largest one-day drop in more than a week.
The biggest question mark is how long it will take for the Euro to get the oomph it deserves. After all, the Federal Reserve has not been known to be particularly friendly to the currency. In addition, the ECB is expected to keep jacking up the country’s borrowing costs. A split government in the US would give a clearer view of what policies might be possible in the future, and might not.
In the end, the best way to gauge the strength of the euro is to consider the euro’s yields compared to the dollar. The greenback’s recent bout with the Swiss franc has had a negative impact on the exchange rate, and the dollar index is now on track for its biggest one-day drop in more than a month. Despite this, the euro has a leg up on the greenback in the long run.