Published: February 3 2011 15:20 | Last updated: February 3 2011 15:20
There are many factors behind the euro’s climb from $1.28 to the dollar in mid-January to almost $1.38 today. While events in Egypt could yet derail the rally – Europe being more vulnerable than the US to any disruptions in the flow of Middle East oil – sentiment about European prospects has improved a lot. For all the uncertainty, the dollar has lost more than 6 per cent against the euro.
Analysts cite several successful eurozone government debt auctions, hawkish statements from the European Central Bank and buoyant risk sentiment as among elements in the newfound optimism.
But there is one additional factor. The Chinese have been buying European sovereign debt in a big and – for China – very public way.
The People’s Bank of China may not wish to see its own currency appreciate against the dollar, but it is more than happy to see others’ currencies do so. Indeed, senior bankers in Hong Kong speculate that Chinese buying may have taken up as much as one-third of recent eurozone bond issuance.
That means it is no longer just the ECB standing behind the euro. The Chinese are backstopping it, too. With China’s $2,850bn in reserves, there is good reason to be optimistic about the euro’s prospects, assuming stability in the Middle East and North Africa. Read More
No comments:
Post a Comment