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Chart of the week

Euro strength and dollar weakness – this time it's political

The problem with currencies is that exchange rates only give you relative values. You never know if a movement is based on the one currency's appreciation or the other currency's depreciation. Take euro/U.S. dollar. Right now, there are those saying that the Eurozone's currency has gained strength. And then, there are those who say that the dollar has weakened. The nice thing is: both are right. As our "Chart of the Week" demonstrates, the dollar has lost against the currencies of America's main trading partners since December 2016 and the euro has strengthened versus the basket of its main trading partners' currencies since April of this year. These dates are important. They suggest, that for once, currency movements are based neither on the economy, nor the otherwise almighty interest rate differential.

This time it's political. In a sentence, it's all about Trump winning in the U.S. and Macron changing investor perceptions on Europe. This observation has ramifications that go beyond flattering French voters. In many respects, the dollar remains the world's benchmark currency. Its strength or weakness influences global trade patterns, commodities as well as capital markets.

Sources: Thompson Reuters Datastream, Deutsche Asset Management Investment GmbH; as of 9/12/17

* Trade-Weighted U.S. Dollar Index

** Trade-Weighted Euro Index

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