Thursday, April 10, 2008

U.S. Dollar, Pound Reach Record Lows Against Yuan, Euro

The yuan and the euro each reached symbolic thresholds against the U.S. dollar and the pound, respectively. The yuan rose so that a U.S. dollar now for the first time sine the early 1990s cost less than 7 yuan. More specifically it rose to 6.9907 yuan per dollar.

Meanwhile, the U.S. dollar is not the only currency falling. The pound reached a new all time low against the euro, so that a pound is now worth less than €1.25. Which alternatively formulated means that the euro for the first time ever cost more than 80 pence. Back in December, when I first started to warn that the pound would fall, it was worth €1.38.

These currency trends are likely to continue. In the case of the yuan it is in fact a certainty as it has different dynamics than other currencies and is directly controlled by the central bank that is committed to a gradual but basically uninterrupted appreciation against the dollar. The pound will likely continue to fall as the U.K. economy will continue to slow and probably fall into a recession. Still, the downside potential does not look as great as in the case of the U.S. dollar, as the Bank of England has not -at least not yet- been as aggressive as the Fed in its inflationist response to the downturn.


Anonymous Anonymous said...

Bank of England cut the rates 0.25%

1:20 PM  
Blogger Celal Birader said...

Hello Stefan

What do you make of the movement in the TED spread ?

1:46 PM  
Blogger stefankarlsson said...

I don't make the same interpretation as others. As interbank rates are not rising and credit is still expanding, all this says is that some investors have an irrational preference for treasuries.

3:50 PM  

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