Euro mortgage currency watch from MoneyCorp

After six months in the wilderness the euro has come back with a bang. Since early June it has added 11 cents against the US dollar, a rebound of more than 9%. For the first half of the year investors fretted about the debt problems of Greece and the possibility that contagion could affect Spain and Portugal. They didn't like the euro so they liked the dollar. Now, they worry that the US economy is running out of steam, even that the president will feel the need for yet more expensive stimulus measures. They don't like the dollar so they like the euro. It is the lesser of two evils.

The pre-and post-election rally did a good job for sterling, as did the new chancellor's brutal budget. Britain's AAA credit rating is no longer at risk and the pound is once again a currency that investors can buy without embarrassment. Many of them reduced their speculative short positions, giving the pound a post-budget boost. That does not mean they feel compelled to fill their boots with sterling. Some fear Mr Osborne's austerity plan could derail the recovery if it leads to large numbers of job losses in the public sector.

The euro's immediate future will depend on the reaction to the results of the 'stress test' imposed by the EU on 91 of Euroland's biggest banks. It has tested their capital structures to see if they could survive another financial crisis. Failure would mean the need for a capital injection. Brussels hopes the test will restore confidence in European financial institutions and revive interbank lending to normal levels. But the exercise is not without risk to the euro. If everyone passes with flying colours, will the results be credible or will the test be dismissed as a cynical piece of window-dressing?

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