As recently as October 2011, the currency bloc was running a deficit in its current account, the broadest measure of trade because it includes investments. On Oct. 17, the same day that U.S. borrowing authority was due to expire, the euro region posted a surplus of 17.4 billion euros ($23.8 billion) for August, up from 15.5 billion euros the previous month.
“We’ve seen very significant improvements in the current account, which is very encouraging,” Steve Barrow, the head of Group of 10 research at Standard Bank Plc, said in an Oct. 16 interview in London with Bloomberg’s Niki O’Callaghan. “Looking at both trade and portfolio flows, you have to say the euro’s in a much stronger position.”
Barrow predicts the euro will advance to $1.40 in the next one to two months.
The European Central Bank has boosted confidence in the euro by offering to buy indebted member states’ debt, though it hasn’t yet had to implement the program, sidestepping the currency-depreciating money printing policies of the Federal Reserve and Bank of Japan.
The euro area emerged from a record-long recession this year, with the economy growing 0.3% in the second quarter, the European Union said Sept. 4.
Bonds sold by the euro region’s most-indebted peripheral nations have become safer buys as volatility in Spanish and Italian debt fell in September below that of U.S. Treasuries, according to Citigroup Inc. That’s the first time the volatilities crossed since early 2011, the world’s second- largest currency trader said.
“The volatility difference has adjusted the risk-reward dynamic between Treasuries and euro-area peripherals, which is why capital is flowing into European fixed-income, supporting euro-dollar,” Richard Cochinos, the head of Americas G-10 foreign-exchange strategy at Citigroup in New York, said in an Oct. 10 phone interview. He still predicts the euro will depreciate to $1.33 by year-end.