Euro Rises Above US$1.50
While most professional forecasters have called for the dollar to rise, I have argued the opposite and called for the dollar to continue its decline, and more specifically fall against the euro so that one euro will cost more than $1.50.
Well, today the euro did indeed rise above the key $1.50 level.
The background for this is that U.S. dollar fundamentals are simply terrible. Helicopter Bernanke and his colleagues are debasing the value of the dollar at a very rapid pace in order to bail out a few failed Wall Street bankers. Meanehile the real economy is rapidly deteriorating, interest rates are lower than elsewhere even as America remains a large capital importer. There's something very wrong and unsound when a capital importer provides lower return on capital than elsewhere.
Yet, the currency market have for weeks been in denial about this, dreaming up fantasies about ECB rate cuts unlikely to occur (Inflation is rising in the euro area and is well above the ECB target. And while the ECB is inflationist they aren't fully as crazy as the Fed) and even in the unlikely event that they did occur would anyway be much lower than Fed rate cuts. Some analysts have even taken the failure of the dollar to fall significantly after the Fed rate cuts in late January as a bullish sign for the dollar. I would argue that it is a case of denial about fundamentals. But while markets are driven by sentiment in the short-term, fundamentals tend to catch up eventually. This is what has begun to happen in recent days, and which will continue during coming months. The euro will therefore likely rise to at least $1.55.
Well, today the euro did indeed rise above the key $1.50 level.
The background for this is that U.S. dollar fundamentals are simply terrible. Helicopter Bernanke and his colleagues are debasing the value of the dollar at a very rapid pace in order to bail out a few failed Wall Street bankers. Meanehile the real economy is rapidly deteriorating, interest rates are lower than elsewhere even as America remains a large capital importer. There's something very wrong and unsound when a capital importer provides lower return on capital than elsewhere.
Yet, the currency market have for weeks been in denial about this, dreaming up fantasies about ECB rate cuts unlikely to occur (Inflation is rising in the euro area and is well above the ECB target. And while the ECB is inflationist they aren't fully as crazy as the Fed) and even in the unlikely event that they did occur would anyway be much lower than Fed rate cuts. Some analysts have even taken the failure of the dollar to fall significantly after the Fed rate cuts in late January as a bullish sign for the dollar. I would argue that it is a case of denial about fundamentals. But while markets are driven by sentiment in the short-term, fundamentals tend to catch up eventually. This is what has begun to happen in recent days, and which will continue during coming months. The euro will therefore likely rise to at least $1.55.
posted by stefankarlsson at 8:37 AM
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