The European Union’s single currency, the euro, was to have created a sea of monetary tranquillity, a stable financial zone from which the crises and speculative attacks of the past would be banished.
This has, by definition happened, inside the EU, given it is impossible to speculate against the franc, the mark and the rest, when they no longer exist.
But the euro’s external value has been anything but stable in recent years. More on that in a moment.
Interest rates diverge
Today, the was 0.05% lower against its closest rival, the US dollar, at $1.1337. A month ago, on 5 November, it stood at $1.1408, and three months ago, on 5 September, it was trading at $1.1630.
Look back 12 months, and the euro-dollar rate was $1.1826.
This, in turn, increases the returns on dollar-denominated assets, making them more attractive relative to euro assets.
But this cannot account for a longer-term decline, in which the euro has lost about 17% of its dollar value over five years.
On 6 December 2013, the euro traded at $1.3706. Its high during that five-year period was seen early, at $1.3911 on 14 March 2014, while its low came in the midpoint, at $1.0503 on 13 March 2015.
A conventional explanation would be that the threat of a break-up of the single currency lies behind the five-year drop, and the receding of this danger would have seen the euro rally had it not been for the abovementioned tightening of US monetary policy.
But the dangers of a euro break-up were well-known not only in 2013 but earlier, with Greece, Ireland, Cyprus and others unable to pay their debts and many banks having to be rescued, at enormous cost.
Sterling rate is bright spot
A partial explanation may be continued sluggish growth in the eurozone compared with the US. The International Monetary Fund (IMF) has noted that the eurozone grew 2.4% last year, ahead of the 2.2% US figure, but it is forecasting 2% in the eurozone this year, against 2.9% in America, and 1.9% next year, against 2.5% for the US.
The euro was down 0.37% against sterling this morning, at £0.8887, but one ray of light has been seen in its five-year performance against the pound. It stood at £0.8384 on 6 December 2013, with a low during the period of £0.6939 on 17 July 2015 and a much more recent high of £0.9257 seen on 25 August 2017.