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Is Europe Turning Toward A Strong Euro?

Is this a sign that the tide is turning in Europe in favor of a stronger euro? Or does it simply reflect the fact that the ECB now is reverting to its old policy of not commenting on exchange rates whatever the circumstance?

The answer may come clearer at the June meeting next Thursday when the appreciating euro undoubtedly will be brought up once again at the press conference.

Two factors point to a possible turning of the tide. One is the fact that crude oil is heading towards $75 a barrel or higher. Second, Europe’s economic recovery is progressing to the point where exports are no longer the sole source of growth.

Indeed, with sky-high prices of crude oil and base metals like copper, aluminum, and zinc, the rising euro has become a shield for Europe’s ongoing economic recovery. These commodities, after all, are priced in US dollars. Because the euro has appreciated against the dollar, the euro price of crude oil and base metals has increased at a slower pace than their corresponding dollar prices. As the escalation of dollar commodity prices continues, so will Europe’s appreciation of its stronger currency.