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What the Euro's Strength Is Really About

Thursday, 10 Nov 2011 | 11:55 AM ET
Partial solar eclipse, Manila, Philippines
AP
Partial solar eclipse, Manila, Philippines

Doomsday talk about Europe has been everywhere, but the euro keeps hanging in. Here's one strategist's reason why.

What with political upheaval in Italy and Greece and France and Germany have even been actively discussing a smaller euro zone, Europe is indisputably in crisis. But like the friendly train in The Little Engine That Could, the euro just keeps going and going.

Simon Derrick, chief currency strategist at Bank of New York Mellon, says it's really not about the euro at all. Noting that the single currency "still remains significantly above the lows seen in early October and a full 14% higher than it did in June of last year," Derrick says, "We certainly do not see this as a vote of confidence in the single currency but, rather, as measure of a growing loss of confidence in the USD itself as a store of value."

Derrick told me he expects growing clarity about new leadership in Italy and Greece will help to calm markets, and says downward pressure on the dollar is likely to grow, thanks to current Fed policy. But don't be too quick to buy euros against the buck: "I'm not convinced right now that there is a huge amount of downside to EUR/USD," he told me, but "That said, Euro zone politicians have made an art of snatching defeat from the jaws of victory over the past couple of years."

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