The euro at 1.12 — a structurally firmer single currency?

At 1.12 against the dollar, the euro is trading at levels that invite a bigger question: is this cyclical strength, or the early signs of a structurally firmer single currency? The evidence increasingly points to the latter, with implications for anyone holding assets across currencies.

Two forces are at work. The interest-rate gap that long favoured the dollar has narrowed as the tightening cycles converge, and the eurozone's persistent current-account surplus provides a steady structural bid that does not depend on the rate cycle.

Implications for portfolios and hedging

For euro-based investors, a firmer home currency raises the value of hedging overseas assets, particularly dollar exposures that have benefited from years of dollar strength. For those who spend in dollars, the calculus runs the other way.

None of this argues for market timing. Currency positioning at Laiki is anchored to real needs — the currencies clients earn, spend and owe in — rather than to a directional view. A structurally firmer euro simply shifts the default hedge ratios we start the conversation from.

We would treat any sharp, sentiment-driven spike with caution. Structure, not momentum, is the reason to hold the view.

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This commentary is provided for information only and does not constitute investment, tax or legal advice. The value of investments and any income from them can fall as well as rise. Figures cited are illustrative for this prototype.