The euro is trading at levels not seen since January 2015 and has posted its best run in five years as dollar weakens and the euro zone economy starts to gradually improve.
On Tuesday, the euro hit a two-and-a-half year high against the dollar, trading just above $1.18 as investors look to move away from the risks surrounding the euro zone and focus on stronger fundamentals driving growth in the region.
“The euro is benefiting from a substantial compression in spreads, allied to removal of European political risks, the latter benefiting from the passage of the French election. The German election has moved to be seen almost as a non-event,” Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, told CNBC via email.
Stretch further explained that improved euro fundamentals, such as annual growth reaching levels not seen in six years, has allowed the European Central Bank to think about tightening its ultra-loose monetary policy. “The prospect of an easing in bond-buying will start to arrest the aggressive expansion in the ECB’s balance sheet.”
The euro is on course for its best year since 2003 when it ended the year up more than 12 percent. The currency has risen nearly 13 percent since the start of 2017 and has also posted its fifth monthly rise in a row, logging its best run in five years.
Since the start of the year, with the exception of February, the euro has ended the month on a positive note.