The euro rises to an eight-month high as a safe haven currency

The euro is likely to continue rising as a safe destination due to nervous sentiment amid global market turmoil. The ECB’s September rate decision remains a key factor in determining the single currency trend.

The euro has risen recently amid global market turmoil, being seen as a safe haven currency. The exchange rate between euro and US dollar it soared to 1.1 on Monday, the highest level since January, before retreating to just over 1.09 on Tuesday.

These movements reflect the global sentiment– A risk-off environment boosted the euro during the stock market crash, while a risk-off sentiment put downward pressure on the single currency after a market relief rally. However, the euro may face further upward pressure given the prevailing global trend.

Safe Haven Currency

Historically, the euro has been considered as a safe place for money of investors due to its high liquidity, its status as an important reserve currency, the considerable eurozone economy and the stable policies of the European Central Bank.

However, this perception of security may have been undermined by the war in Ukraine, a weak economic outlook and the recent political turmoil. Despite this, the eurozone remains a crucial part of the global economy. Recently, the euro has regained its safe haven status insurance amid market turmoil, fueled by the rise of the Japanese yen and a steep drop of the US stock markets.

Market volatility could persist

Despite a broad rally in stock markets global markets, volatility could persist as fundamental conditions remain unchanged. This could further support the euro as a safe haven asset.

The recent and intense liquidation in stock markets was triggered by a strongly strengthening Japanese yen after the Bank of Japan’s rate hike (BOJ) last week. Currency traders have been unwinding carry trades, leading to a reversal in the yen and a fall in the higher-yielding US dollar.

A currency carry trade involves borrowing in a currency with a low interest rate and invest in one with a higher interest rate, with the aim of benefiting from the interest rate differential. Investors have been borrowing yen at lower rates to finance stock investments, so the recent reversal of the yen has contributed to the sell-off of the global stock market.

It is too early to conclude that volatility is over. The Bank of Japan is expected to continue its monetary tightening, not only raising interest rates but also reducing their bond purchases.

This is likely to lead to further repatriation of yen, as many japanese companies, burdened by high debt, will have to pay their loans. This trend could continue to pressure the US dollar and boost the euro as well as less affected currencies by global trends, such as the Australian and New Zealand dollars.

The next ECB meeting in the spotlight

Not only the world trendsbut also the path of the ECB’s interest rates are key factors influencing the euro movement. Eurozone inflation unexpectedly accelerated to 2.6% in July, up from 2.5% the previous month, lowering inflation expectations. a second rate cut by the ECB in September.

The signs of an economic recovery in the eurozone could also attract capital inflows, as investors seek stability amid continued market volatility.

Instead, the US Federal Reserve is widely expected to begin reducing its interest rates in September as they rise recession fears amid recent softening economic data in the country. The market participants they hope that the recent market turbulence also prompt the Fed to deliver three rate cuts this year, causing the US dollar to fall further.

As a result, a weakened US dollar and a American stock market in decline could further consolidate the euro’s status as a safe haven currency. The appeal of the euro as stable asset in times of uncertainty global may be bolstered by its relatively strong performance compared to other currencies.