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EURO BUBBLE?
Bloomberg ^ | May 24, 2003

Posted on 05/24/2003 5:59:24 PM PDT by bruinbirdman

``Our jaws dropped to the floor when we arrived this morning,'' said Michael Woolfolk, senior currency strategist at Bank of New York, which holds $6.8 trillion of assets in custody. ``Traders won't stop until they see the dollar at $1.20 per euro.''

Contrasting U.S. and European economies make the dollar's fall perplexing, some economists said. Gross domestic product in the U.S. is expected to grow 2.4 percent this year, the median forecast of economists surveyed this month by Bloomberg News. In Europe, the economies of Germany, Italy and the Netherlands are shrinking, and no growth is expected in Japan.

``This decline goes far beyond the economic fundamentals of the U.S. in relation to Europe or Japan,'' Woolfolk said.

Federal Reserve Chairman Alan Greenspan said on Wednesday the U.S. is poised to grow faster and the risk of deflation is remote. He said monetary policy ``remains accommodative,'' meaning U.S. rates are low enough to encourage businesses to borrow.

Automatic orders to sell dollars and buy euros also contributed to the decline. Traders and investors often place automatic orders to limit losses in the event their bets go the wrong way.

``We had a convincing break through $1.1750, and that triggered some buying from China and the Middle East,'' said Neil Jones, director of foreign exchange at Nomura International Plc in London. ``Everyone is looking at $1.20 now.''

``Investors know the Treasury secretary got very close to saying he favors a weak dollar. The comments triggered a sell- off,'' said Paresh Upadhyaya, who helps manage $67 billion in international assets as a currency analyst at Putnam Investments in Boston. ``The currency will continue to decline.''

Upadhyaya said he is recommending that clients buy euros and Australian and Canadian dollars.

Merrill Lynch & Co. and Goldman, Sachs & Co. are among banks that cut their forecasts for the dollar this week. Merrill expects the currency to drop to $1.25 per euro by year-end. Goldman sees it as weak as $1.35.

(Excerpt) Read more at quote.bloomberg.com ...


TOPICS: Business/Economy; Foreign Affairs; Government; News/Current Events
KEYWORDS: currency; economics; exchangerate

1 posted on 05/24/2003 5:59:24 PM PDT by bruinbirdman
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To: bruinbirdman
I'd go with the Goldman $1.35 prediction - at best. Once a major trend establishes itself in the currency markets, it tends to extend much farther than rationally justified..
2 posted on 05/24/2003 6:05:14 PM PDT by AntiGuv (™)
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To: AntiGuv
I wonder what the McDonalds index is at the moment.
3 posted on 05/24/2003 6:23:04 PM PDT by Torie
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To: AntiGuv; bruinbirdman
When the EU want to bring its interest rates down, how does it do it? Does it buy bonds and if so whose bonds does it buy? I can see how the EU fights inflation, but I don't see how it can fight deflation?
4 posted on 05/24/2003 6:25:06 PM PDT by Ranger
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To: AntiGuv
Big Mac Index
5 posted on 05/24/2003 6:31:50 PM PDT by Torie
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To: Ranger
Europe, or anyone else for that matter, can fight deflation by spurring private-sector demand. Doing that is not so easy, however, especially in Europe.
6 posted on 05/24/2003 7:40:15 PM PDT by Batrachian
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To: Batrachian
It's hard to fight deflation when you've got a stagnant, aging population. That's what's been killing Japan for the last 15 years, and that's what is going to drag Europe down for the next few decades.
7 posted on 05/24/2003 8:55:55 PM PDT by Alberta's Child
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To: bruinbirdman
Is the reason that the US is allowing the Dollar to fall an effort to protect a weak Yen?
8 posted on 05/24/2003 11:19:18 PM PDT by Mike Darancette (Soddom has left the bunker.)
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To: Mike Darancette
The 'weak' dollar doesn't exist. Bush is punishing the EU and the big nations of Europe....with the only tool he can use. The German and French population are going to spend tons of money on US products and travel over the next 12 months. The US is going to make lots of money and create an large cash flow into the US. Bush knows this. And it will limit US purchases of German or French goods...which is good for us too. This will likely cause Schroder to call for early elections...and Chirac will lose alot of support by a failing economy. The US can't lose....its going to make money, and hurt the EU.

One interesting note...if you haven't noticed. The Danish Kroner, is exactly where it was a year ago in relation with the US dollar...6.6 kroner per dollar. It would seem obvious that we are targeting only a special group of people....of which the British and Danes are not part of. Schroeder and Chirac can do nothing at this point...except sit and wait for the bottom to hit. And my guess is that its still 12 months away.

The losers in all of this. US companies with operations in the EU countries...because they will not compensate their US employees with the poor rate. Those guys will suffer terribly. But its a Bush strategy that will help America.
9 posted on 05/24/2003 11:35:11 PM PDT by pepsionice
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To: pepsionice
Thanks for that analysis. That's what I was thinking was happening, but I'm not real bright on these things and was unsure if it was right.
10 posted on 05/24/2003 11:46:21 PM PDT by McGavin999
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To: pepsionice
It would seem obvious that we are targeting only a special group of people....of which the British and Danes are not part

President Bush: "Either you are with us, or, you are against us."

Chirac and Schroeder in unison: "What are you going to do about it?"

GW: "Eh, eh, eh."

yitbos

11 posted on 05/24/2003 11:50:34 PM PDT by bruinbirdman (Veritas vos liberabit)
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To: pepsionice; McGavin999
Have you considered the possibility that the euro is strengthening simply because it offers better yields than the dollar?? On the off-chance that this proves the explanation, then the solution would be for the European Central Bank to cut interest rates - something Bush has no control over..
12 posted on 05/25/2003 12:43:44 AM PDT by AntiGuv (™)
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To: AntiGuv
The European Central Bank is the biggest bunch of tightwads around. Cutting the interest rate is something they'd have a problem in doing. As for the better yields....3 of the top five banks in Germany have major problems right now (check out the Commerzbank). Most businesses have maxed out on loans from the key banks right now and can't borrow anymore because they aren't developing any new business. Marketing beyond the European shores is getting very tough for the old style European economy.
13 posted on 05/25/2003 3:58:00 AM PDT by pepsionice
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To: pepsionice
I think you are giving way too much credit to the power of the Fed/ESF to control exchange rates. They are targeting the Euro but not the Kroner? How exactly would they be doing that? Market forces determine the value of a currency over the long term, as many countries who thought otherwise have found out the hard way. Also, everything else I've read suggests multinationals will be beneficiaries of a falling dollar because their foreign profits will be magnified when converted back into dollars.
14 posted on 05/25/2003 7:14:42 AM PDT by Soren
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To: pepsionice
.....it will limit US purchases of German or French goods.....

It will also limit African, South American and Asian purchases of German and French goods. American salesmen will beat the bushes around trhe world and get orders from companies they haven't sold in years.

Sell Seimens, buy GE

15 posted on 05/25/2003 7:30:24 AM PDT by bert (Don't Panic !)
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To: bruinbirdman
Goldman sees it as weak as $1.35

If it gets there, we are going to hear some serious squealing sounds coming from the European side of the Atlantic.

16 posted on 05/25/2003 8:28:59 AM PDT by Prodigal Son
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To: pepsionice
I'm looking at a recent issue of the Economist and it says that the dollar has declined against the DKr from 8.2 a year ago to 6.46 in early May. The Danish and Swedish Central Banks track their currency against the euro rather closely, so this shouldn't be a surprise.

There's really nothing Bush could do to pick and choose the rate of the dollar among small currencies so it's strong in one place and weak in another.

I also disagree with the gist of your argument that Bush is moving currencies to take out Chirac and Schroeder, but that would be a much more involved discussion.
17 posted on 05/25/2003 3:00:58 PM PDT by HostileTerritory
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