BERLIN -- It's been tough for the euro recently. Everybody is touting Europe's bubbly economic recovery, the
European Central Bank
is hiking interest rates and the region's equity markets are at record levels. Yet the new currency still wallows near all-time lows against the U.S. dollar.
Whenever it appeared that the euro would start gaining against the greenback -- as many economists predicted last year -- the seemingly unstoppable U.S. economy would power ahead and cause the euro to sag further. No dramatic reversal of fortune on the foreign-exchange markets is expected, but data to be released in the coming week should show that Europe's economy continues to gather steam apace, thereby supporting the flagging currency.
A survey of German business confidence by the
research institute in Munich is likely to show continuation of eight months of consecutive improvement for Europe's largest economy. The report will be released on Thursday morning, just hours before Europe's monetary authorities meet in Frankfurt to discuss monetary policy.
While no one is expecting the ECB to follow up its quarter-point rate hike two weeks ago so quickly, the central bankers are sure to take note of how business sentiment for roughly a third of the euro-area economy is developing. And besides supporting the euro, the
, which hit record highs last week, could also get a boost out of the report should it signal further strength for German business. For U.S. investors, the implication is that if they are thinking about investing in Europe and want to make an easy currency play with their strong dollar at the same time, now may be the time to do it.
To be sure, the euro's weakness has been a major factor in securing the improvement of business sentiment and the surging stock market, as Germany's export-oriented economy got a kick-start as its goods became cheaper abroad. Big industrial companies such as
have benefited as the euro suffered.
Any euro recovery, however, would likely be so gradual as to pose little shock, now that the German economy at large has steadied itself somewhat. The euro recently traded at $0.9875.
"The historically loose policy mix in the euro area now should be conducive to a strong recovery in final domestic demand, augmenting the strength in exports," says Catherine Lee, an economist for
Indeed, surging German manufacturing orders have yet to kick into production with the full force many economists have been expecting for months, making a huge burp in output likely at some point between now and the summer. Once that comes, barring the now not completely unthinkable further strengthening of the U.S. economy, the euro should scamper back up to a level more fitting of a currency in a region that's undergoing a healthy economic rebound.
Europe, it would then seem, has risks to the upside all over the place. Increasingly positive business sentiment, climbing stock prices and higher interest rates all look like pretty safe bets. Now it's up to the euro to show that it belongs on an upward slope too.