If the euro were to write something we call an essay on the topic “How I spent my summer”, it would write that it did well, unlike its peers.
Indeed, after years of gloom, euro bulls are celebrating the single currency's brisk rise to two-year highs against the dollar.
The rally is attributed to coordinated and timely measures taken by the European authorities.
The weaker dollar has fueled the euro’s summer breakthrough, and the uncertainty surrounding the US presidential election is adding to the single currency’s strength.
“Building expectations for a Democratic sweep have likely played a role in weakening the dollar and strengthening the euro," said Lee Hardman, foreign exchange strategist at MUFG Bank Ltd. in London.
A win for Former Vice President Joe Biden and the Fed's adoption of a new strategy that opens the door for higher inflation could significantly weaken the dollar.
Considering all these factors, traders need to brace for lingering turbulence in the dollar/euro pair, which could last until the end of the year.
Some investors are placing bets for a rise even to $1.28. That would be an 8% increase from current levels, and would take it to the highest level since 2014.
"The euro can compete with the dollar for being the western currency of choice for trade purposes, and can compete more generally with other safe haven currencies as being a credible, long-term store of capital," Peter Chatwell, head of multi-asset strategy at Mizuho, said.
