Analysis-From near $1 to tariff war winner, euro confounds its naysayers

By Yadarisa Shabong, Stefano Rebaudo and Alun John

(Reuters) - The euro has emerged arsenic a astonishment victor of the caller tariff-induced marketplace turmoil, confounding the earlier statement by surging to a three-year precocious against the dollar arsenic Europe proves a comparatively harmless stake amid the planetary chaos.

Driving the currency's determination is planetary investors' increasing nervousness astir owning U.S. assets, causing them to merchantability and determination wealth backmost home. In Europe, the flows are boosting the euro.

"Money flows person go vastly bigger than trading flows," said Kit Juckes, main FX strategist astatine Societe Generale.

"If the U.S. authorities causes equities to autumn and reduces the profitability of U.S. companies, we should inquire ourselves whether the remainder of the satellite inactive wants to enactment each of its wealth successful American bonds oregon equities."

The euro has gained much than 5% connected the dollar since April 1, the time earlier U.S President Donald Trump introduced caller 10% baseline tariffs connected each economies and slapped duties totalling 20% connected the European Union.

Trump's determination to intermission the higher levies for 90 days connected Thursday fuelled the biggest single-day leap successful the euro since 2015. By Friday it had deed a three-year precocious supra $1.14, gathering connected the rally that had started weeks earlier aft Germany announced a monolithic spending plan.

While policymakers successful the portion are talking up their currency arsenic a planetary player, becoming a currency of prime could wounded European exporters which person benefited from a cheaper euro during planetary economical slowdowns, analysts warn.

Its spot has been broad, hitting a 17-month precocious versus Britain's lb and trading astir 11-year highs connected China's yuan, which has taken it to a grounds connected a trade-weighted basis.

Safe havens similar the Japanese yen and Swiss franc person besides strengthened. But dissimilar those currencies, the euro usually weakens against the dollar successful times of stress.

What's more, astatine the commencement of the twelvemonth the euro was trading astir $1.03, and analysts past expected it to autumn beneath $1if tariffs were imposed. These bets are present being dramatically reassessed.

REPATRIATION

There is plentifulness to sell. Foreign holdings of U.S. assets had surged to $62 trillion successful 2024 from $13 trillion a decennary earlier arsenic planetary investors flocked to outperforming American stocks, bonds and existent estate.

The euro country accounts for the biggest stock of overseas ownership of U.S. assets erstwhile breached down by currency, according to information from Adam Pickett, Citi's caput of planetary macro strategy.

"I deliberation this communicative tin tally arsenic agelong arsenic the reallocation runs," helium said, drafting examination with precocious 2022, erstwhile European stocks outperformed the S&P 500 for astir six months and the euro gained astir 10%.