Is the euro defying gravity?

The euro’s further rise certainly has not supported our forecast that it might eventually fall to parity against the dollar. The worries about peripheral debt that we had expected to drive the currency down are still raging, but they are perhaps seen as less of a threat to the euro-zone’s survival. They have also been overshadowed by quantitative easing in the US and the ECB’s reluctance to join in. • Talk of even more QE in the US in future could maintain upward pressure on the euro for a while. Meanwhile, further progress towards an orderly default mechanism for the periphery might reduce the chance that high debt there prompts the euro-zone to break up. Next year, though, we see the euro more than reversing its recent gains as it becomes clear that QE will not stoke inflation in the US and the euro-zone recovery stalls amid eye-watering fiscal cuts.