The increasing attractiveness of euro-denominated assets as a potential alternative to US dollar securities may generate sudden shifts in portfolio flows and unwelcome volatility in foreign exchange markets. Another potential indirect channel of disturbance in the dollar/euro exchange rate is possibly the role of the US dollar in the invoicing of oil and other major commodities.
Over the past few years, the surge in oil prices and other commodities – in US dollar terms – has been associated with a negative relationship with the exchange rate of the US dollar against the euro.