This inflection point is of massive importance for currencies because while the US trade deficit keeps growing, the eurozone’s current account surplus cruises over 3 per cent of GDP. An era of sustained performance of the single currency may well open up, if the Franco-German axis proves able to deliver on its historic opportunity to cure the eurozone from its existential doubts.
Unsurprisingly, the slippage in the clout of the US political model is also benefiting China. The US exit from the TPP can be looked at as the symbolic go-ahead to China’s regional and global ambition. Again, as the US seems to be turning its back, Asian countries will no doubt be listening to China’s offer of a closer relationship.
The Asian Infrastructure Investment bank, the “One Belt, One Road” project and the ambition to establish their own reserve currency, the renminbi, are all being given a boost by the US attitude.
Last but not least, the assault on the dollar’s geopolitical status is also a boon for gold, the ultimate reserve currency, whose price is now breaking out from the declining trend it started after its 2011 peak. In conclusion, technical factors aside, the strength of the euro is both a reflection of the weakening of the US currency and of the new hopes that Europe can convincingly turn the corner after six years of existential threat.
Nothing is written in stone: the US could suddenly do a U-turn in its vision and the challenge of bringing Europe together might prove beyond the reach of France and Germany’s reinvigorated efforts. However, the opportunity is there to be seized. The euro’s option value is great.
