In a year dominated by sterling's decline, the yen's rise and the dollar's weakness, little impression has been made by the euro — although that may be about to change.
The foreign exchange sidelines is not a bad place to be. The pound's sharp fall illustrates investors' doubts about post-Brexit Britain. Japan is on a permanent state of yen-watch, putting continuous pressure on its central bank to act. The Federal Reserve agonises whether a rate rise strengthens the dollar to the extent that it weakens the US economy.
Away from the fray, the euro is quietly strengthening. The year began with the euro worth about $1.08 and market positions heavily shorting the currency.
Since then, the market has been paring back those short positions and the euro is now worth around $1.13.
True, it is not a vast appreciation compared with the yen's rise against the dollar and the euro is below its $1.16 high for the year reached in May, but analysts and investors think the euro is on a more sustainable upward path.
"For many people, the euro has been showing surprising resilience," says Dominic Bunning, HSBC's senior FX strategist.
"Many have a perception that the euro is going to parity with the dollar. We think the euro is going to parity, but it's going to parity with the pound in the long term."
There are several reasons to explain the euro coming back into favour. First, the current account surplus of the eurozone, like Japan's, is strong, generating inflows to the region. It now adds up to 3.3 per cent of GDP.
"There is no doubt the current account surplus in both areas are significant and continue to prop up both currencies," says Alan Wilde, head of fixed income at Baring Asset Management.
Secondly, political risk, a factor that has tended to weigh on the euro, seems to have been kept at bay. Brexit was meant to raise questions about the euro's survival, but since the UK is not a euro member and as there are few signs of a feared Brexit contagion, those questions seem redundant.
They may resurface when Italy holds its constitutional referendum later in the year, but political risk is "not something on people's radar that much", Mr Bunning says.
"The ECB is very much there as a backstop, which means you're not getting a contagion effect on eurozone peripheral bonds. Without that contagion effect, it's hard to see a negative fallout for the euro."
The ECB is very much there as a backstop, which means you're not getting a contagion effect on eurozone peripheral bonds. Without that contagion effect, it's hard to see a negative fallout for the euro
Thirdly, eurozone data have been fairly robust of late. The regional's business output hit a seven-month high, enough to make JPMorgan drop expectations of further European Central Bank rate cuts, while the rate of growth on a year-on-year basis has overtaken that of the US for the first time in five years.
"The euro could continue to appreciate if the data continue to improve," says Ugo Lancioni, FX and fixed income portfolio manager at Neuberger Berman.
"So far there has been limited Brexit impact and recent eurozone data have been strong. There is no doubt that eurozone growth is slowly catching up with the US. Those betting on a euro collapse have been gradually getting out of euro shorts, frustrated by its resilience."
Dollar weakness is another factor pushing the euro higher, influenced by fluctuating US economic data — particularly job creation.
As the market awaits Fed chair Janet Yellen's speech from its annual symposium at Jackson Hole on Friday, market expectations that she will continue to walk the route of caution she has pursued for much of the year should keep the dollar down, and so support the euro.
Even if the Fed chair changes tack and forks off down the road of hawkishness, it is not the euro that will fall significantly against the dollar but other currencies such as the pound, the yen and the New Zealand dollar, according to Goldman Sachs.
That is because the market has become "less interested" in the theme of policy divergence, GS says.
UBS concurs. "Two-year rate differentials between the US and the euro area are now close to their widest of the cycle, yet EUR/USD is well off its lows," UBS said in a note. What matters more to investors, says the bank, is growth differentials.
Is euro appreciation likely to match the pace of the yen's rise? There are specific reasons for the yen's strength, says Mr Wilde, such as market scepticism about the Bank of Japan's negative interest rates policy and Japanese investors repatriating the currency after being encouraged to move assets overseas.
According to Mr Lancioni, the yen's strength is "simply a function of its excessive devaluation" of recent years. The euro may be weaker than previously, making the eurozone more competitive, but not to the extent the yen was undervalued, he says.
Neither the BoJ nor the ECB want to take action at next month's meetings, Mr Wilde believes, so for the time being euro resilience may be enough for the ECB to conclude that its monetary policy is working.
"Stability is probably more important to central banks than volatility," Mr Wilde says.
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