International investors seem incapable of ending their love affair with the dollar. America’s economy has slowed sharply this year, yet its currency has risen to a 15-year high in trade-weighted terms. Against the euro the dollar touched $0.88—8% higher than in early January and close to the level at which the European Central Bank and the Federal Reserve jointly intervened to prop up the European currency last September. Why is the euro looking sickly
There are plenty of theories. One is that the markets do not trust the ECB: the euro-area economies are not immune to America’s downturn, yet the central bank still seems more concerned with fighting inflation than with supporting growth; another more plausible explanation is that, in an uncertain global economic climate, the dollar has resumed its traditional role as a safe-haven currency. Most economists reckon that the euro is undervalued and expect a rebound over the next year. One of the most optimistic is Goldman Sachs, which is predicting a rate of $1.22 in 12 months.