Ideally consumers would be able to choose the bananas they like best. African bananas cannot compete effectively in North America because of the distance, with Europe located about equidistant from Central America and Africa. Investors looked baffled, but then seemed to accept that this was not a covert devaluation. If the dollar and euro stay at par then pegging to either or both would make no difference. If the euro depreciates, however, the peso is devalued compared to a dollar peg.
Investors generally expect the euro to depreciate relative to the dollar at least long term.
Devaluing the peso allows the Argentine government to run budget deficits, increasing peso supply and inflating the currency. The best peg for a currency is the largest trading partner s currency and Argentina is increasing its trade with Europe. The peg has to be supported by central bank transactions and there may be increasing central bank balances of euros in reserve. Baffled investors had better be cautious if the Argentine government does not have fiscal and monetary discipline. On cue, the yen fell to its lowest level against the dollar for 17 months, breaking through 119 in intraday trading.