Why is the euro so strong?
The euro has become more attractive to investors because the US dollar has been in freefall for some time amid fears of a recession. The Federal Reserve has been slashing interest rates and the Bank of England has also been cutting, and hinted at further rate reductions yesterday, while the European Central Bank has held them steady. Rate cuts encourage investors to switch to other currencies which offer a higher rate of return. With market players betting that the interest rate gap between Britain and the continent will narrow further, investments have been flowing into the euro and talk of pound-euro parity may pick up again. What has happened to the pound? It has slumped to record low, falling below 80p a euro for the first time on Wednesday. Flipped the other way round, the pound now buys just under €1.25, down from close to €1.50 last summer, a fall of nearly 17%. Has the pound always been this weak against the euro? When the euro was launched in January 1999, the single currency
