The level of uncertainty enveloping global markets has reached an extreme level.
Who would have thought that close to 13 years after its introduction at a time when it has become the second largest reserve currency globally (26.7% of global reserves) as well as the second most traded currency in the world, European leaders would be openly talking about allowing countries to exit the EUR?
No less an issue for currency markets is the sustainability of the USD’s role as the foremost reserve currency (60.2% of global reserves).
The US debt ceiling debacle and the dramatic expansion of the Fed’s balance sheet have led to many official reserve holders to question their use of the USD.
Perhaps unsurprisingly the JPY has been the main beneficiary of such concerns especially as global risk aversion has increased but to the Japanese much of this attention is unwanted and unwelcome.
The immediate focus is the travails of the eurozone periphery.
Against the background of severe debt tensions and political uncertainties it is perhaps surprising that the EUR has held up reasonably well. However, this resilience is related more to concerns about the long term viability of the USD rather than a positive view of the EUR...
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Mitul is the author of the forthcoming, and fairly appropriately titled, Gyrating Currencies (Searching Finance 2012)