Monday, August 11, 2008
Dollar rally, Euro swoon
Notwithstanding the apparent inability of the United States to make good on its implicit security guarantees in the Caucasus, the dollar continued its rally against the Euro today. The Euro fell to around $1.49, the first time it has traded below $1.50 since late February. Take a look at this year-to-date chart of the Euro, which does not include today's gain:
Of course, if I had any idea why currencies do what they do I would make a lot more money working a lot less hard. I have wondered, however, why the Euro roared to such rarified levels; over any term longer than short, you have to believe that the United States has better prospects for economic growth and offers better returns on investment than the Eurozone. Our capital markets are more liquid, our economy is more dynamic, and our population is growing rather than shrinking.
11 Comments:
By 
Lou Minatti, at
Mon Aug 11, 09:10:00 PM:
however, why the Euro roared to such rarified levels
It was a speculative mania, one of many over the past few years. The EU was ascendant; America was an "empire in decline." That's what the leftards said and prayed for.
Well, now reality has set in. Western Europe is an economic basket case facing the same real estate and banking crises as the US, only their budgets are in even worse shape and they are sitting on a demographic time bomb. Europe will soon be a place of bitter, childless old people wondering where their fat pension checks went.
By 
, at
Mon Aug 11, 09:16:00 PM:
everyone thinks the ECB will have to cut rates b/c they will be hit by a housing bust like the us within the next year. Lower rates = lower return on investments denominated in Euros, less appealing to hold. Some people are pricing it in now.
By K T Cat, at
Mon Aug 11, 09:32:00 PM:
It's not strange that the Euro is falling, it's the slope of the curve that's odd. If this was people pricing in future rate cuts, you'd expect it to happen more gradually than this. Instead, this looks a lot like a speculative bubble being burst. But who has all that cash to sling around and drive whole currencies like this? I would think it would take a lot of Euros and Dollars changing hands to make a drop that large.
By , at
Mon Aug 11, 10:25:00 PM:
If The ECB didn't want the Euro to collapse, they shouldn't keep handing over the cash, unloaned, to the Spanish banking system willy-nilly. That's inflationary, and it catches up on you in a hurry.
De-coupling, what de-coupling?
By Kevin, at
Mon Aug 11, 10:40:00 PM:
It bears repeating that a currency is not a stock, don't expect it to behave like a stock. Of course the U.S. will vastly outperform Europe economically, and any serious financial player knew that every step of the way of the Euro's rise. Sophisticated people aren't investing in the Euro or dollar just based on some feeling about how the economies will perform long-term, like buying Google stock.
It's supply & demand of course, and a myriad of things contribute to both. Interest rates current and expected, trade balances, fear and greed in the domestic markets, price of oil, capital flows etc.
By , at
Mon Aug 11, 11:18:00 PM:
It's largely a corrective measure. The economy always tends towards equilibrium, and the consistant increase in US exports has caused an increase in the demand for dollars, and therefore the dollar appreciates. Given that the European markets are beginning to slow faster than the US, and that the central bankers in Europe are going to do what the Fed did several months ago--free up additional capital to offset a possible recession-- the fall in the value of the Euro is completely consistent. Now if I had only known this several months ago...
By , at
Tue Aug 12, 12:36:00 AM:
With Russian tanks on the march would you rather own Euros or dollars?
Kevin
By , at
Tue Aug 12, 03:22:00 AM:
It isn't just the Euro. The Pound, Aussie, and New Zealand Dollar have all lost a lot of ground against the U.S. Dollar. Britain is facing a pretty bad slowdown, and look at the thrashing commodities (gold, for one) have taken in regards to the latter two. Look at all of those USD pairs from around 7/15/08 to now. That's also when oil (priced in USD) peaked.
By , at
Tue Aug 12, 06:10:00 AM:
Why not the end of the offshore drilling ban? Oil has dropped, why not a stronger dollar in response to this? The oil import bill is humongous, so lower prices lowers the trade deficit and helps the dollar.
By Joe, at
Tue Aug 12, 07:06:00 AM:
it was my fault too, i wired some dollars over here and bought euros. from the time the money was sent to when it was usable I lost $500. doh!
By , at
Tue Aug 12, 05:34:00 PM:
You have it backwards re: the Russian attack on Georgia's influence on Euro value. Because of its potential negative effect on the EU economy, it would lower Euro value; if the US threats had pushed Russia back, the invasion's effect on the Euro would fade. Caveat: This is only in regard to the invasion's influence on the Euro; it does not explain everything.
