With the euro being quoted above $1.20, the media are now reporting that the euro has advanced against the dollar. But you cannot tell for certain whether you are witnessing the euro's appreciation or the dollar's depreciation, merely by looking at the euro's exchange rate vis-a-vis the dollar. This is because, under the float system, an exchange rate simply reflects the relative value of the two currencies in question. To determine the real value of a currency, you need to have a third standard.
During the pre-float years of the International Monetary Fund system, gold was that standard. Gold has recently been quoted above $400 per ounce. Its strength reflects not only increased geopolitical risks, such as terrorism and the continuing uncertainty in Iraq, but also the falling value of the U.S. dollar itself. It's the same reason crude oil refuses to dip below $30 per barrel.
And the dollar is falling against the yen as well. It has depreciated less sharply against the yen than the euro, but only because Japanese monetary authorities have intervened in the currency markets to support the dollar. The exchange rate doesn't correctly reflect the real value of the yen. Given these factors, we should realize that what we are seeing is not so much the rise of the euro as the fall of the dollar.