The euro continues its fall against the dollar today after yet another opinion poll showed French opposition to the European Union constitution continues to strengthen before Sunday’s referendum. Against the dollar, the euro fell to $1.2545 at 8:33 a.m. in London, from $1.2601 late yesterday in New York. The euro wasn’t exactly strengthened by the fact that Sarkozy had to deny a reprot that he had already informed Chirac that the vote was lost.
In itself this decline – in fact the euro has fallen against the dollar by 7.9% so far this year – is relatively benign, and may even be beneficial for hard pressed exporters. Mathew Lynn provides a reasonably summary of the issues here.
The problem is that there are a confluence of problems – the constitution, the absence of growth, elections in Germany, Italy and Portugal and the Stability and Growth pact, and now, divisions and lack of solidity in the ECB. The danger is that uncertainty among politicians following from a ‘no’ hangover, could be just what it takes to turn a benign slide into a run.
Isn’t euro weak because economies like Germany and Italy are in deep troubles and the ECB may be consodering a rate cut sooner or later?
Meanwhile, on the other side of the Atlantic, rates are going up as the U.S. economy is performing solidly – thus making U.S. securities more attractive.
“like Germany and Italy are in deep troubles and the ECB may be consodering a rate cut sooner or later”
Yep you’re right, this is certainly part of the picture, and the US bit. I think there may be more factors though.
btw you obviously aren’t *the* Pavel Kohout, but are you by any chance a relative? Just curious.
Incidentally you could throw some light on the debate on Czech euro entry (see post on other Afoe page) if you get a moment.
The blogger seems to forget that the Euro was initially introduced with the VERY aim to be on par with the Dollar. The high valuation of the Euro in recent years was mostly due to artifical trickery by rthe US government which suited them for export purposes.