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”.
Subscribe to 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.
Sign up for MoneyWeek's newsletters
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.
-
Stock market turmoil: ‘Should I move money out of investments and into cash instead?’
As global stock markets go into turmoil over Trump tariffs, you may be wondering if your money is safe or whether you should sell your shares and move to the so-called safety net of cash accounts
By Kalpana Fitzpatrick Published
-
Why French far-right leader Marine Le Pen has been banned from running for office
Marine Le Pen, presidential candidate and leader of France's right-wing National Rally party, has been barred from standing by the country's judges.
By Emily Hohler Published
-
Best of British bargains: cash in on undervalued companies in the UK stock market
Opinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
By Michael Field Published
-
Building firm Keller presents low debt and ample scope for growth
Geotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
By Dr Mike Tubbs Published
-
PZ Cussons share price down 75% in last decade – why it's one to watch
Opinion Once-strong consumer-goods business PZ Cussons is out of favour with the market. That spells opportunity for investors, says Jamie Ward
By Jamie Ward Published
-
Cash in on the biotech sector with specialist trust BioPharma
Opinion BioPharma has an attractive niche in lending to asset-rich biotechnology companies
By Rupert Hargreaves Published
-
India's stock market decline wipes out $1.3 trillion in market value – can investors stay optimistic?
More than $1 trillion has been wiped off from India's stock market after investors turn to China. Has the emerging-market darling hit rock bottom?
By Alex Rankine Published
-
Pensions revolution: how to profit from the trends shaping the UK pension system
The UK pension system is one of the biggest in the world. Big changes are under way, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Large cap stocks start to struggle – is it time for investors to reassess their focus?
Buying quality large caps worked very well last decade. A more volatile world will be a bigger challenge for these star stocks, says Cris Sholto Heaton
By Cris Sholto Heaton Published
-
How to generate income with fixed-interest investments
Public debt is overvalued, but other fixed-interest investments now look like a bargain, says Max King
By Max King Published