Will a stronger euro ruin Europe's rally?
International investors have been buying into European stocks, driving the euro higher. But that surge now risks dampening the recovery that started it.
The euro has gained 8% against the US dollar this year. In response, European Central Bank (ECB) president Christine Lagarde has promised to “monitor carefully” developments in the foreign exchange market.
A rising euro creates two problems: firstly, it means lower import prices. Eurozone consumer price inflation turned negative in August, so more deflationary pressure is unwelcome. Secondly, it hits the earnings of exporters, especially significant in a bloc where exports make up about 45% of GDP and bourses are crammed full of multinationals.
Confidence in Europe’s economic recovery has encouraged international investors to buy into local markets, juicing the euro’s rally, says Jack Ewing in The New York Times. Ironically, that surge now risks dampening the recovery that started it. The ECB would prefer a weaker currency, but there is a tacit “non-aggression pact” between big central banks when it comes to exchange rates: actively talking down the euro would risk retaliation from Washington, sparking a self-defeating “currency war”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In any case, as Andrew Kenningham of Capital Economics points out, the current valuation is hardly eye-watering: the euro last traded at around $1.18 in 2018 and was as high as $1.38 back in 2014. The stronger euro will thus be a headwind, but it looks unlikely to sink eurozone stocks.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
HMRC confirms crypto ETN ISA rules
With crypto ETNs now technically available for UK retail investors, HMRC has confirmed they can be held in an ISA – but there’s a complication
-
Pensioners targeted in fine wine scams – the tactics to watch for
Wine has emerged as the latest lure in investment fraud, with pensioners being specifically targeted by scammers
-
Pierre-Édouard Stérin wants to make France great again
Conservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging markets
Opinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growth
Pinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'
Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with follies
The best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuation
AEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefully
Shares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?