Currency 5/19/2003 Weak Dollar/Strong Euro - New Record

Oanda.com ^ | 5/19/2003 | Outspot

[OutSpot]

Euro hits 4-year high

The euro was at $1,1739 today, up from about $1,1672 in late U.S. trade on Friday, and hitting its highest level since January 1999.

Dollar Within Grasp of Euro Debut Rate

Ruters Monday, May 19, 2003; 6:17 AM

By Justyna Pawlak

LONDON (Reuters) - The dollar dropped to multiyear lows on major currencies, bringing the euro within grasp of its debut level on Monday, after U.S. Treasury Secretary John Snow cemented views that Washington backed a weaker dollar.

[OutSpot]

Who is taking bets on a 1,20 rate next month.

We are talking a whopping 40% difference since the lows in 2000 (.8381) In layman’s terms (almost) That means European goods/travel have become 40% more expensive. And.... US goods have become 40% cheaper

[Beck_isright]

Maybe not next month. But after the Fed cuts rates again, I could see 1.25 easily.

[elfman2]

I've heard people claim that the catalyst of this was driven by anti-Americanism in currency speculators.

Although no one intentionally loses money in that kind of market for politics, there's a background desire to invest in the currency of the organization that you favor that got the ball rolling in this direction.

[DB]

Low US interest rates mean low return on holding US currency.

The EU has high interest rates in spite of going into recession. Double whammy on the EU...

[elfman2]

" Low US interest rates mean low return on holding US currency. "

Excuse my ignorance, but why? When one buys a currency, do they indirectly buy that nations loans? Intuitively, I'd think that the currency price would be more directly related to that nation's economic prospects and currency risk.

[longjack]

Maybe not next month. But after the Fed cuts rates again, I could see 1.25 easily.

The German newspaper "Die Welt" has an article about this today. Some estimates in Germany are running at 1.45. Merrill Lynch / Goldman sachs are estimating 1.34/1.35.

The article reports the profit loss estimate is 4.7% loss per 10% rise in the Euro. Porsche, due to the 30% rise in the Euro, has had profits cut 30% this year.

Here's the article, in German, though:

"Die Welt"..Währungsexperten hissen die rote Flagge (Currency Experts Raise the Red Flag)

longjack

[longjack]

A correction about Porsche:

The article said a 10% raise in the Euro since last year shaved 30% off Porsche's profits.

longjack

[Beck_isright]

Ouch. That means all the Euro auto makers are going to get creamed. Add the fact that they are in or close to recession and their obligation to not run deficits and defend the Euro with their central banks and that might just be a good group of ADR's to short.

[DB]

I'm no expert but I'd guess that when interest rates are low along with low markets returns investment money leaves the country in search of higher returns. Security with no returns isn't very attractive. People are willing to take some risks for higher returns. That is outside the US for now.

[WoofDog123]

Also like 35% since even early last year, as I recall trading euro at like .863something.

[ItsTheMediaStupid]

Intuitively, I'd think that the currency price would be more directly related to that nation's economic prospects and currency risk.

What it should reflect is the differance in each country's inflation. The inflation in Europe is higher so the Euro's value should go up. In the long run this is good for the U.S., as the dollar goes lower our exports get cheaper and theirs get expensive meaning more of our exports are sold and less imports are sold here.

[elfman2]

"What it should reflect is the differance in each country's inflation. "

Thanks, that makes more sense.

[SAJ]

That line of thinking is plausible, but does not account for the huge run-up in US debt markets, particularly at the long end of the curve. Corporates, too, but perhaps not as markedly as the 30- and 10-year US paper. Clearly, at least one more factor is at work in the macro-market, and I suspect it is a generalised distrust of most common equity shares. Everyone seems to want hard yield just now.

That said (said he, being one of those nasty currency 'speculators' everyone loves to blame for everything from failed crops to diarrhea), Euro looks MUCH higher vs both USD and JPY through year-end. One more reason for this, not often discussed, is that the market has come to realise that ECB, unlike BoJ and the Fed, is almost entirely a passive institution -- they intervened little if at all on the way down, and the thinking is that they won't intervene much now, either.

[A. Pole]

We are talking a whopping 40% difference since the lows in 2000 (.8381) In layman’s terms (almost) That means European goods/travel have become 40% more expensive. And.... US goods have become 40% cheaper

Does it mean 40% difference in GDPs comparisons?

[ffusco]

Intuitively, I'd think that the currency price would be more directly related to that nation's economic prospects and currency risk.

Exactly, we have a confidence standard!

[longtermmemmory]

"Euro-flation" is the ugly and dirty secret of the EU. There is real man-on-the-street inflation. People can't afford the new euro prices. Everything is being rounded UP to the nearest Euro. (euros also have cents just like the $$ btw). Some countries to combat this have ordered labeling to specify euros and cents so merchants rounded UP again to the higher whole euro. There are propaganda commercials funded by the EU which say "really prices have gone down."

This inflation is to be expected but I believe there was a rush to adopt the euro before synchronizing the currencies. This was intentional to force the poorer members to borrow more from the central bank and make it harder to bail.

[HaveGunWillTravel]

Freepmail me when you're ready to place a bet in the futures market. I'd love to be any Freeper's broker.

Risky and not for everyone.

[ImphClinton]

This will mean more American jobs. It means our products are dheeper in Europe and theirs more expensive here. Travel there is more expensive.

Stay home this summer and help our economy. See the Grand Canyon or Yellowstone or Mt. Rushmore instead of France or Germany.