The euro hit its highest levels in nearly three years on Friday and many believe it will soon reclaim the $1.20 level against the dollar as the US currency continues to flounder.
While the eurozone economic recovery gathers pace, there are signs that US growth is beginning to top out.
Monetary policy should be supporting the dollar. The Federal Reserve has lifted its main Fed funds rate four times since its post-financial crisis low of 0%, including twice so far this year.
The Fed funds rate currently stands at 1-1.25% while the European Central Bank's refinancing rate remains at its post-crisis historical low of 0%.
Where's the carry trade?
Such a gap in rates often represents an opportunity for yield-hunters. Called the 'carry-trade', investors use a low-yielding currency, such as the euro with its 0% yield, to fund purchases of assets in higher-yielding currencies.
In such a scenario, one would expect the euro to be weakening as it is sold to fund purchases of dollar assets.
But investors have become wary of the carry trade in recent years following shock events such as China's renminbi devaluation in 2015 and the Swiss National Bank's pegging in 2012, then dramatic de-pegging against the euro three years later.
Such events caused massive market volatility and volatility is the nemesis of the carry trade. Months of carry-related gains can be wiped out in seconds when markets become turbulent.
The euro gained strong support in June after ECB president Mario Draghi made a speech in the Portuguese town of Sintra celebrating the central bank's triumph over deflation.
Many took the subtext of this speech to mean the ECB was ready to start withdrawing stimulus.
"When Draghi was more upbeat during the Sintra conference, suggesting that with a strengthening economy a constant monetary policy stance does actually equal a more accommodative monetary policy, markets logically saw this as a tightening announcement," says Peter Vanden Houte at ING.
Differing paths of economic growth are also supporting the euro.
While levels of annual gross domestic product growth are reasonably close: 2.6% in the US vs 2.1% in the eurozone – US growth appears to be slowing, while eurozone growth continues to expand.
"The euro’s strength against the dollar in 2017 has coincided with an improvement in the fortunes of the eurozone economy relative to the US economy," says Oliver Jones at Capital Economics.