Posted on 12/27/2004 2:26:08 AM PST by Jordi
PARIS (AFP) - The euro hit a new record of 1.3555 dollar early as activity was resuming in Europe after the Christmas holiday.
The previous high for the European currency was 1.3549 dollar, during trading on Friday.
At 0730 GMT the euro was trading at 1.3541 dollar.
The euro has hit a series of record summits against the dollar during the past week following the publication of weak US economic data -- the moves higher being aided also by thin trading volumes which increase volatility in the markets.
With most financial markets closed Monday in London, trading volumes were razor thin.
The dollar has been touching new lows against the euro lately as sentiment in the market towards the US currency bleakens due to concerns about the United States vast external and budget deficits.
On top of that, it is believed some central banks are considering reducing the reserves in dollars.
"Recent moves by the monetary authorities of various countries to increase the weighting of euros in their foreign exchange reserves could continue to depress the dollar," Aozora Bank foreign exchange dealer Kazuhiro Nishina said in Tokyo.
"Such moves may allow market players to continue to ignore weak economic fundamentals in the Euro-zone and to chase the euro higher," he added.
This single line speaks to the insanity of a high Euro:) The EU Zone suffers from double-digit inflation, no growth (on-shore) except in off-shore investments, etc.
I suspect that in Summer/Fall of 2005, the dollar will be higher with the Euro at 105-109 to the Dollar.
Correction to my post, that should have read "Double-Digit Unemployment" by their own admission:)
Should we care? I suppose if we still made things in America this might mean foreign markets buying American but um...
I don't think so. I think ,instead that the disequilibrium is too marked, and we are watching a sort of comedy, where bankers, central bankers, finance ministers,managers, commentators say that this classic method is appliable to the dollar, but in reality they don't trust their own words.
It's impossible to suppose that imports exceeding exports by 50% can be lowered merely with a reajustments of exchange rates. By the way, we can't even think that given those conditions, the dollar doesn't fall.
I mean, the fall of the dollar is, at one time, neccesary and not suffice to rebalance world trade fluxes.
(It would be suffice with the dollar at 60 yen and the euro at 2.20 dollars: but the world financial markets would collapse much earlier...)
So what? I just say we are in uncharted territory. Let's remember a difect of birth of the international monetary system.
The original international monetary system of Bretton Woods was built on 3 levels, with fixed rates among them. At the base there was gold, at the first level the dollar (convertible at the fixed rate of 35 dollars per ounce of gold),at the second level there were currencies convertible in dollars at a fixed exchange.
The collapse of Bretton Woods in 1971 led to free floating exchanges between gold, dollar and other currencies. But the dollar remained the base of a two level system, playing the role of major foreign reserve and term of comparision for the other currencies' value.
The actual dollar crisis can be attributed to the inability by the US to act as a world central bank. Infact the countries that plays the role of the world central bank (i.e. printing the currency of reference for all the other world currencies) can't be a bigger debtor with the rest of the world. One can't be refree and player. If one is refree and player ,could damage the game so much that it can't be fixed.
Just think that in the last two years the dollar fell 20% vs the yen and 40% vs the euro and the US trade deficit kept on worsening.
Even though the dollar has been falling vs the Euro, gold has not gone up in concert. Should this be telling us something?
If it is in the interest of the world to finance our profligate spending who are we to refuse a gift horse ??
BUMP
Germany's GDP last year was a negative 0.1 and their unemployment is still over 10%.
Bretton Woods and its eventual collapse was the biggest economic event of the last century, except maybe for the Great Depression (We're still dealing with the after effects of BW.). It's always good to come across someone else who knows about it.
It may be classic, but it doesn't work. For instance, while our exports are up with the weak dollar, our imports are up even more in dollar terms. The Federal Reserve did a study on several economies with current account deficits. The best course is to leave them alone and let the market take care of them in a smooth fashion.
Yes. That money is going into Euros, not precious metal.
Trade deficit effects are going to lag exchange rates by a considerable number of months. The 2H04 trade deficit figures are also distorted by oil prices -- much of the oil imported in the fourth quarter was bought at above $50/bbl.
The European social welfare system softens the political impact of the overvalued Euro. Another few months on the dole isn't going to move unemployed Germans into the CDU column, and employed Europeans seem completely unafraid of layoffs ... regarding them as unlikley in the first instance, and not particularly dangerous, due to the ability to go on the dole, in the event they were to occur.
I think that we'd have to see a $1.50 Euro before we'd get a coordinated response.
The really interesting thing is that it makes the U.S. credit markets a big game of chicken.
If the U.S. credit markets give out first, we're going to see U.S. interest rates and yields spike, a bloodbath in terms of bond valuations, and a huge blow to the consumer economy, in that massive quantities of income will be shifted from spending into making suddenly higher payments on adjustable rate mortgages. A sharp increase in fixed interest rates will most likely pop the real estate bubble, too, hitting those valuations as well.
If the Europeans and the Japanese give out first, due to fears for their manufacturing, a massive coordinated buy of U.S. dollars will actually have the reverse effect: a further decline in U.S. interest rates and a rally in the bond market as fixed-income securities move to unheard-of low yields.
Yeah, keeping the Euro high is just economic voodoo. I would take the health of the US economy, even with the budget deficits, over the ailing European economy (with deficits of their own) anyday. The dollar will come back strong. I think the only thing driving this is hatred towards the US, but in reality, a weak dollar has been a positive for our economy.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.