What's going on?

In another sign of Europe�s burgeoning economic recovery, on Friday the euro hit its highest level versus the US dollar since early 2015 (tweet this) (and its highest in eight years versus the pound)!

What does this mean?

The heads of both the European Central Bank (ECB) and the US Federal Reserve gave speeches on Friday � but neither made comments concerning their interest rate policies. Previously this summer, the head of the ECB hinted that the ECB would begin paring back its exceptional policies (which are designed to support the economy by keeping interest rates low). Investors appeared to interpret the lack of new information on Friday as a sign that they had correctly interpreted his previous �hints� � and that interest rates in Europe are set to, gradually, increase. The ECB is likely to offer more definitive clues about its future policies at its upcoming meeting in September � and investors will be paying close attention.

Why should I care?

For markets: Higher interest rates tend to lead to the currency going up in value.

Global investors like to chase higher interest rates: naturally, they want to invest in places that pay them relatively more money (e.g. in the form of interest on government bonds). As such, investors tend to buy a country�s currency when it looks like interest rates in that country are going to increase � which is likely a big part of the reason why the euro has gone up in value relative to other currencies in recent months.

The bigger picture: The weaker dollar is a big story so far this year too.

The US dollar has weakened almost 10% this year versus other major currencies. That makes it easier for US stocks to perform well, largely because so many major US companies generate a significant proportion of their revenue outside of the US (think: Facebook�s global advertising revenue). As their international revenue becomes worth more when translated back into US dollars, their stock prices tend to rise. For a similar reason, European stocks have struggled to maintain their recent highs as the euro strengthens.