The USD has appreciated over 7% against the Euro in the past six months. Should this trend reversal be attributed to American optimism or European pessimism? Both sentiments play a role, argue analysts. Most economists’ forecasts for the US economy are positive- and that may be an understatement. Real GDP forecasts are high and inflation forecasts are low. Consumer confidence is increasing at the same rate unemployment is decreasing.

The prospects for Europe, on the other hand, are not very good. The developed countries in the region continue to stagnate. Unemployment is high and growth is low. When investors began buying Euros en masse a few years ago, many cassandras predicted the end of American economic preeminence and the subsequent end the the USD as the world’s reserve currency. Needless to say, their predictions could not have been more wrong. Despite the recent reversal, many investors continue to bet against the dollar. Warren Buffet has not abandoned his multi-billion dollar bet against the USD, even after sustaining $350 million in losses! He is not alone in his belief. The Wall Street Journal reports:

Some think 2005 could mark a transitional year, one in which the Euro loses its role as the highest-flying currency against the dollar and Asian currencies take over the leadership role when the dollar turns down again, as dollar skeptics expect it to do.

Read More: Dollar Rebound Builds on Stronger Economic Data