The single best explanation for the euro’s resilience is real yields. Eurozone real yields have moved steadily higher since the trough in summer 2012 and exceeded US ones last autumn. Breaking down the move into its component parts, the overwhelming contribution has come from the fall in Eurozone CPI from a peak of 3% in late 2011 to 0.7% at the latest print. Rates have remained static through the period as the ECB has struggled against the zero bound.
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