Tag Archives: Dollar

Another Day On Euro Watch

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I’ll keep tracking the euro again today, and updating as appropriate. I’ve just posted some stuff in the comments section of Afoe:

Looking at the newspapers the euro steadied up overnight, but seems to be on its way down again in Tokyo. As I write it is trading at $1.2194, ten minutes ago it was 1.2186.

Firstly during the night the dollar firmed:

“Against the euro, the dollar fell to $1.2211 at 9:50 a.m. in Tokyo, from $1.2179 late yesterday in New York, according to electronic currency-dealing system EBS. It was also at 108.64 yen, from 108.76. The dollar traded as high as $1.2160 per euro yesterday, the strongest since Sept. 20,”
Bloomberg.

The general consensus seems to be that the euro will rebound, since that is what the technical charts say it will do. Be these are not ‘normal’ trading circumstances and this view may not be appropriate.

Strategists at National Australia Bank hold what seems to me a reasonable perspective:

“Barring news of a sharp slowdown in the US, the euro is set to test 1.2000 and then 1.1760, the NAB strategists said, adding that the market focus is now turning to US non-farm payroll data for May to be released on Friday”.

I think we are in the hands of events, with a definite downside risk on the euro. So lets wait and see how they unfold.

Update 1: 9:30 CET. The euro is now staging a strong rally $1.2260 at the time of writing. Among other factors which may be affecting this is a speech by Dallas Fed President Richard Fisher which suggested the Fed tightening cycle may be nearly over. This is being widely interpreted as Greenspan testing the water. It is also something I have been arguing for the last couple of weeks: Europe’s weakness is now setting limits to monetary policy in the United States.

Euro Under Pressure

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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.

China’s Currency and Trade

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Currency traders around the globe lazily staring into their screens must have found themselves transfixed last Friday when the flatline indicating the value of the Chinese yuan (or renminbi if you prefer) suddenly jumped to life. And so it was that during a brief 20 minute interval the yuan surged to a level of 8.270 to the dollar from the hypnotic and seemingly eternal value of 8.276. Now 6 thousandths of a dollar isn’t really a very big deal, but it is the sheer fact that it happened that is causing all the fuss.
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Onwards And Upwards We Go

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It’s no secret that the euro is now hitting record highs in its exchange rate with the dollar. It is also pretty apparent that some EU leaders are becoming rather preoccupied about the consequences of this for those eurozone economies which are driven by exports. What is much less clear though is what can be done about it.

The dollar early today was trading at $1.3065 per euro in Tokyo, signalling that the $1.30 psychological threshold may now lie behind us. Some experts are suggesting that the ECB would be reluctant to see the euro rise above $1.35, but since what is happening is more a dollar slide story than a euro rise one it is hard to see what they can effectively do about the situation.
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Hardly Breaking News

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That the US jobs report last Friday showed continuing weakness in the labour market is certainly by now far from breaking news. I wouldn’t however want to let it pass by without comment. I think it is now abundantly clear that there is a pattern in all this somewhere (what that pattern is precisely, and what is causing it may be another matter). The US is not creating the quantity of new employment it needs. This means that the output gap (the gap between potential and actual output) is unlikely to reduce, and that the Fed will in all probability be unable to raise interest rates as vigourously as it had anticipated. This is also likely produce downward pressure on the dollar (with a consequent upward pressure on the Euro) and all sorts of other weird and wonderful things which should preoccupy those given to thinking about these matters. I think the debate is effectively over though: this is more than just a ‘soft spot’.
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Of We Go Again, Ready, Set……….

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After a weekend of semantic analysis the currency markets didn’t take long getting back to work – the euro was only a cent off its all time high by late morning. According to Dictionary.com the relevant meaning of volatility is: tending to vary often or widely, as in price – the ups and downs of volatile stocks. Not much danger of volatility here, not if the only way the dollar is going to go is down. Wouldn’t the more appropriate term have been secular decline? But maybe they aren’t against that, and the markets in turning the pressure back on the dollar, have read the signal exactly right.
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Things That Can’t Go On Forever, Don’t

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Ok, the sun is shining nicely down here in Barcelona right now, so maybe this is a good moment to come out and provoke a storm. The euro: something gives, but what? Actually it is perhaps ironic that I have chosen today of all days to write this, since for once it seems the euro may fall rather than rise: well to someone who is accustomed to marching out of step, this almost seems par for the course. Never mind, tomorrow, or the day after, we will be back to normal, and the seemingly unstoppable rise will continue. The only remaining question really is: where is breaking point, and what will happen when we get there?
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Fiscal Tickery

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Thanks David for the link. I haven’t commented on this because like Dutch finance minister Zalm (who I imagine working away weblogging into the early hours under a dim light provided only by his mobile phone) I am tired. I can’t help feeling that everything that needs to be said has already been said, and many times over. Now all we can reasonably do is wait and see the consequences.
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Stability Pact

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First of all, let me say I’m flattered to be invited to guest-blog on Fistful of Euros, which I’ve long thought was the coolest name of any blog ever.

I’d hazard a guess at two big reasons nobody has much to say about the security pact unraveling: First, there’s simply not that much to say at this moment beyond the bare facts of the case (although neither The Economist nor US bloggers Daniel Drezdner and Atrios have really captured the outrage that European editorialists have spewed at Paris and Berlin over this). The message from Germany and France is pretty clear: Do as we say, not as we do. End of story.

Second, this is a pretty difficult topic for a layperson (such as myself) to get his head around. Hence the usage of compact but vague phrases like “Europe Rips Up the Rulebook,” the headline given my recent press review on Slate covering this topic. (Feel free to read that if you want a review of the basic facts of the case from a non-economists’ perspective, plus a dose of what the European papers have said about the topic; but naturally I can’t compete with The Economist‘s coverage.)

So they tore up the rulebook. Seems a little back-to-basics is in order here: What was the rulebook for anyway? And what does this mean for the future of the euro?
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