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What the Dollar Can Do for the Euro

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CNBC.com

Europe has plenty of problems, but the dollar could make all that irrelevant for the euro.

Sure, Greece is in crisis, and yes, there is plenty of talk of a euro zone recession.

But if you really want to know where the euro is headed, take a look at the dollar.

That's the view of Michael Woolfolk, a senior currency strategist at Bank of New York Mellon .

"Improving economic trends in the United States will lead to certainly more of a risk appetite, globally speaking," he told CNBC.

As a result, "foreign investors will be using the U.S. dollar as a funding currency for the carry trade, selling U.S. dollars and investing in overseas assets. So we see weight on the U.S. dollar, particularly in the second half" of 2012.

In the near term, Woolfolk expects the euro to face some headwinds, given the myriad problems in Europe. But by the end of the year, as the U.S. economy picks up and investors' risk appetite improves, he thinks that "1.40 is a good target," adding, "It wouldn't surprise me if it we got up to 1.45 in the fourth quarter."

You can watch the discussion on the video.

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