European Central Bank President Mario Draghi, embracing policies dismissed by his predecessor, is forcing euro bears to capitulate.
Since July 26, when Draghi said he would do “whatever it takes” to save the 17-nation euro, the currency has appreciated versus each of its 16 major counterparts tracked by Bloomberg. The cost to protect against a default on government debt in western Europe tumbled to a 15-month low and confidence in the region’s banking system is improving, with bank stocks rallying 33 percent since June 1, exceeding the 18 percent gain in the Stoxx Europe 600 Index.
What European policy makers “have shown so far is their willingness to support the currency union and do as much as they can,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA.
Foreign-exchange strategists cut their forecasts for the euro throughout the summer. They expect the common currency to fall to $1.23 by the end of the year, compared with the median estimate of $1.28 in a May survey. That’s the second-largest decline among major currency pairs behind franc-dollar forecasts, which have dropped 2 percent.
The currency is also getting a boost from a weakening dollar, as the Federal Reserve embarks on a third round of bond purchases, or quantitative easing, buying $40 billion a month in mortgage bonds to inject cash into the economy and attempt to bring down unemployment.