French President Francois Hollande addresses European mayors during a meeting on the climate ahead of the COP21 climate change summit at Paris city hall March 26, 2015. REUTERS/Eric Feferberg/Pool
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The U.S. dollar recently hit12-year highs, while the euro plunged inexorably to below dollar parity.That is why the euro was still worth almost $1.40 a year ago – and why I and others expected the euro to fall a long way against the dollar.At least four factors could push the dollar-euro exchange rate the other way.First, there is the effect of the strong dollar itself on the U.S. economy and its monetary policy. If the dollar continues to rise, U.S. economic activity and inflation will weaken. A third factor suggesting that the euro's downward trend against the dollar may not last much longer is the trade imbalance between the U.S. and Europe.
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