This week, the currency market has rediscovered its roots: comparative economics.
It has put an end, for now, to a two-year relationship in which the exchange rate of the euro against the dollar moved in direct correlation with equity markets and took its cues from changes in investors’ appetite for risk. In its place are concerns about a weak U.S. economic outlook and related doubts about whether the dollar’s climb has been justified.
After rallying 20% against the euro this year until its peak just below $1.19 on June 7, the dollar appears to have tapped its limits as a safe haven from the euro zone’s debt crisis. It has since lost about 5% against its European counterpart.
