The surging euro may be the European Central Bank's best friend for a change.
Unlike much of the past 15 years, euro strength is on the ECB's side as it meets on Thursday. And it is unlikely to restrain the central bank from tightening further.
The scale of that rise matches the trade-weighted euro's surge as the pandemic unfolded in 2020 and in less time than the 300 days it took back then. For the past decade, that sort of euro strength would have drawn howls of ECB protest against a deflationary impact via import, energy and commodity prices - aggravating the central bank's struggle to get inflation up to its 2% target, even with negative interest rates and persistent asset purchase schemes.
Euro strength has built on belated ECB interest rate hikes since July - up some 350 basis points to 3.0% so far and expected to go up at least another 25 bps this week. What's more, a preference of global investors for relatively cheap euro zone equities and a greater exposure of the bloc to China's post-COVID reopening helped the currency. Murmurs of a reshuffling of reserve holdings away from dollars due to geopolitics and the U.S. debt ceiling standoff added something at the margins.It is unlikely to stand in its way anymore at least.
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