EXCHANGE RATES PORTEND US RECOVERY

IT is one of the most striking signals that there’s a growing belief among investors that economic recovery in the world’s largest economy, the United States, is now well under way.

Over the past month, the dollar has fought back strongly against the euro in global markets. The US currency has just hit a four-month high. The surging euro, which peaked at $1.19 in May, is now below $1.09 and falling.

With signs of recovery across Europe still limp and unconvincing – we now know that Germany, Italy and the Netherlands were all in technical recession in the first six months of this year – the single currency’s retreat may have some way to go yet.

Currency traders are clearly buying dollars in expectation that recovery in the US is obviously taking root. That’s always what currency traders do. Perversely, their actions may have a self-fulfilling impact on their downbeat assessment of recovery prospects in the euro-zone.

The euro is down 9% against the American currency in the past two months alone.

This is good news for those of us who get paid in dollars, but spend Euros.

Of course, what the story doesn't tell you is that the dollar was down over 30% against the euro over the last 18 months.

So a 9% gain isn't that big a deal.