Monday, May 16, 2005
Dollar hits seven-month high vs. the Euro
The dollar rose to a seven-month high against the euro on Monday after a slew of strong economic data eased worries that the United States would have difficulty financing its gaping current account deficit.
And this($):
The U.S. Dollar Index against major currencies last Friday posted its first weekly close above its 55-week moving average since April 2002. That's a key resistance level, a kind of psychological barrier that helps define which way the market is moving.
Why? Because on April 2, 2005, the editors shorted the dollar:
The dollar's current uptick is just a breather in its overall downward trajectory.... The dollar is heading down, no matter what.
The Times was so certain that the dollar would fall as the consequence of Bush Administration policies, its readers might be forgiven for wondering why we need currency markets at all.
In fact, the Times seizes on any downturn in just about any market as proof of the Bush Administration's "mismanagement" of the economy, and it attributes any strength in any market to other causes. Its editorials on the intersection of politics and the financial markets are irrational and unprincipled.
1 Comments:
By 
Cardinalpark, at
Mon May 16, 10:17:00 AM:
Particularly amusing in watching the Times trade currency is, again, its failure to appreciate history. During Ronald Reagan's presidency, oft-maligned by the NYT in its heyday, the US ran "record-breaking" deficits and trade imbalances. We did so to stimulate our way out of the ecnomic morass of the 1970s and to finance the buildup which ultimately broke the back of the Soviet Union. Notwithstanding these twin deficits, the US dollar rallied to unprecedented strength in the 1980's.
Why?
Probably a mix of features:
1) Stronger relative economic growth
2) higher and rising interest rates
3) more liquid and attractive capital markets
4) Global power status increasing against the backdrop of a weakening USSR
In order to place a bet against the US economy and its dollar, let's remember that you are also placing a bet on something...in this case, the euro.
While the euro has certainly created great excitement, and rightly so, it still has its deficiencies:
1) most eurozone countries grow far more slowly than the US and are plagued by quasi socialist policies which lead to high unemployment and high taxation -- not so great
2) Europe is not a properly integrated country like the US...leading to limited mobility of resources -- not so great
3) it's not a power like the US
4) its capital markets are less liquid and deep.
All of which is to say Europe is fine and a real competitor...but the US is a powerhouse economy and the dollar still enormously important to, well, everybody.
Politics ultimately doesn't drive currency movements...economics does. And the NYT ain't much on business and economics.
