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Why is the Euro still at $1.40~ ?
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Lateralus
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Sep 9, 2011, 11:39 PM
 
Yes, the situation in the US is hardly improving at a speed that would allow the dollar to rise like a phoenix, but the situation in Europe is arguably worse given the discord and lack of something as decisive as the Federal Reserve.

So why is the Euro still holding so much higher than the dollar? I'll remind everybody that last summer's Euro crisis revealed fewer cracks than we've since discovered, and it brought the Euro down to $1.19 temporarily.

Any reasonable explanation?
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reader50
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Sep 9, 2011, 11:51 PM
 
Offsetting effects. The Euro has trouble, so they buy T bills. The treasury is printing money for the bailouts and wars, so the effects cancel out. I'd expect the Euro and Dollar to fall vs other currencies.

That or the ever-popular Conspiracy by the Liberal News Media.™ They're behind it somehow.
     
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Sep 9, 2011, 11:54 PM
 
It's a lot of factors. Mostly what reader said, but even though some Eurozone countries like Portugal, Greece, and Italy are in deep trouble, others like Germany are still safe houses for investors. That's both the strength and weakness of the Euro: You have weak countries to bring it down, and stronger ones to hold it up. It sort of helps things even out.
     
Andy8
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Sep 10, 2011, 12:08 AM
 
People will have another option in a few years:

Yuan Will Be Fully Convertible by 2015

Chinese officials told European Union business executives that the yuan will achieve “full convertibility” by 2015, EU Chamber of Commerce in China President Davide Cucino said.

“We were told by those officials by 2015,” Cucino told reporters in Beijing yesterday, declining to identify the government departments involved. People’s Bank of China Governor Zhou Xiaochuan said that while there is no timetable for convertibility, the offshore yuan market is “developing faster than what we had imagined.”

China has accelerated the use of the yuan in international trade and investment to curb its reliance on the dollar. A fully convertible currency is one of the criteria the U.S. and Europe are demanding from china as a condition for allowing it to be part of the International Monetary Fund’s currency basket. A 2015 target would be a year faster than the schedule expected by 57 percent of 1,263 global investors in a Bloomberg survey published in May.

“Making the yuan fully convertible will lead to foreign inflows into China and a stronger yuan,” said Sacha Tihanyi, a Hong Kong-based strategist at Scotia Capital. “Making the yuan fully convertible is also the key step in pushing it as a reserve currency and enhancing its use in global trade.”

The yuan advanced 0.16 percent to 6.3840 per dollar as of 4:30 p.m. in Shanghai. The currency gained 6.4 percent in the past year and touched a 17-year high of 6.3705 on Aug. 30. Its 0.9 percent advance in August was the biggest in 2011.

Acceleration Tolerated

The latest timeframe would be more aggressive than China’s 12th five-year plan through 2015, released in March, which said the nation was aiming at “gradually realizing the renminbi’s convertibility under the capital account.” China “has no defined timetable for the yuan to be fully convertible,” Zhou said. “It will be a gradual process.” Zhou is in London for an official visit with Chinese Vice Premier Wang Qishan.

“This does sound a bit too early,” said Stephen Green, head of Greater China research for Standard Chartered Plc in Hong Kong. “Even Taiwan and South Korea don’t have full convertibility yet. And if you look at the volatility in global markets right now that looks set to continue for the next few years, this target seems unlikely.”

Currency Basket

The People’s Bank of China said on Aug. 1 it will manage the yuan more actively against a basket of currencies, instead of just the dollar, and allow market forces to play a greater role. The central bank fixes a reference rate for the yuan and limits daily gains or losses to 0.5 percent from that level. The country also limits conversion for investment purposes, and has amassed record foreign-exchange reserves of $3.2 trillion by selling yuan to curb its appreciation.

U.S. Vice President Joe Biden told his counterpart Xi Jinping on Aug. 18 during his state visit that China must address its undervalued exchange rate and remove import barriers to spur trade and investment, administration officials said.

China has started a program to promote use of the currency in global trade. The government issued draft guidelines in August for foreign direct investment in the country using yuan raised offshore and plans to let qualified fund managers invest such funds in China’s stocks and bonds. A similar program already allows licensed companies to convert a quota of foreign exchange into renminbi for investment in Chinese markets.

Barclays Capital wrote in a Sept. 5 note that China will likely achieve basic convertibility of the capital account over the next five years, although restrictions on the amount of money that fund managers can move across the border may remain.

Wang met with U.K. Chancellor of the Exchequer George Osborne in Britain today. Wang will support efforts by U.K. banks to establish a yuan offshore trading center in London, the Financial Times reported yesterday, citing unidentified British officials.

“The City of London has expressed its interest to help develop yuan’s offshore business,” Zhou said. “We are very encouraged.”
I guess by then we will ditch our dollar peg.
     
turtle777
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Sep 10, 2011, 12:08 AM
 
Well, wait for next week. There is a chance that Greece will declare bankruptcy.

--> flight to safety, USD will rise, Euro will fall to 1.20

Subsequently, the Eurozone might break apart. Germany is shortly before a public revolt against politicians that blindly try to safe the Eurozone. It's futile. Sometime in the next years, the German people will say "Fcku it", and leave the Eurozone as we know it.

-t
( Last edited by turtle777; Sep 10, 2011 at 10:44 AM. Reason: Added link)
     
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Sep 10, 2011, 04:44 AM
 
Originally Posted by Lateralus View Post
lack of something as decisive as the Federal Reserve.
And there you go - answered your own question. A team of players looking out for each other is always better than one fat bloke looking out for himself.

Plus, the situation in Europe isn't anywhere near as bad as your media leads you to think it is. Nowhere near as bad - the US is in a much worse position.
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Sep 10, 2011, 09:26 AM
 
Originally Posted by Lateralus View Post
... but the situation in Europe is arguably worse given the discord and lack of something as decisive as the Federal Reserve.
What makes you think the situation in Europe is worse than in the US? It's not a problem of FED vs. European Central Bank, it's about the state of the economy. And there, the US is a ahead of the curve.

Note my choice of words: I don't think Europe is doing fundamentally better, but that the problems in the US have progressed much further. Plus, the US economy is much more important than the Greek economy.
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turtle777
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Sep 10, 2011, 10:03 AM
 
The ONLY reason why the US is in a (*cough*) "better" position is because they can print money, and they are not shy to do it. The ECB has some historic issues with "helicoptering" the market with paper money. They have started to change, but it's too late. The first domino (Greece) is about to fall, the rest of the PIIGS will follow. The Euro zoo zone is finished.

Fundamentally (because of all the debt), both the EU and US are f*cked.

-t
     
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Sep 10, 2011, 03:06 PM
 
@turtle
First of all, the FED has run out of options while the ECB has more options left. Both banks have different philosophies on how to deal with this crisis, though. Secondly -- and much mort importantly, all the FED or the ECB can do is put a band aid on to mitigate some of its effects of the current crisis. It cannot solve any the problems.
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Lateralus  (op)
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Sep 10, 2011, 03:44 PM
 
Originally Posted by OreoCookie View Post
What makes you think the situation in Europe is worse than in the US? It's not a problem of FED vs. European Central Bank, it's about the state of the economy. And there, the US is a ahead of the curve.

Note my choice of words: I don't think Europe is doing fundamentally better, but that the problems in the US have progressed much further. Plus, the US economy is much more important than the Greek economy.
The American economy is actually doing fine and is plenty productive; it's just not creating any jobs because it's become even more efficient since the crisis.
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Sep 10, 2011, 04:41 PM
 
Originally Posted by turtle777 View Post
--> flight to safety, USD will rise, Euro will fall to 1.20
Actually, the Euro getting weaker would probably help Europe more than hinder it.
     
Lateralus  (op)
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Sep 10, 2011, 04:58 PM
 
Germany in particular, since it's an export economy.

Germany really has gotten screwed this past decade; with the rise of the Euro, the cost of buying goods from them became more expensive internationally, which hindered economic potential. And now they're shelling out to cover other countries in the union who, comparatively, offer nothing economically.
( Last edited by Lateralus; Sep 10, 2011 at 06:31 PM. )
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Sep 10, 2011, 05:37 PM
 
Originally Posted by Lateralus View Post
Germany in particular, since it's an export economy.
Oil and aerospace also come to mind.
     
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Sep 10, 2011, 05:54 PM
 
Exchange rate, like stock price, is not actually indicative of anything.

And Ben is running the money printing machine like a madman. How does the US Dollar M0 compare to the Euro M0?
     
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Sep 11, 2011, 04:08 AM
 
Originally Posted by mduell View Post
Exchange rate, like stock price, is not actually indicative of anything.
Sorry thats wrong. Just look at the Swiss Frank recently. Its has risen more than gold in the past few months. The Swiss National Bank is even trying to lower the exchange rate.
     
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Sep 11, 2011, 04:45 AM
 
Originally Posted by Lateralus View Post
Germany really has gotten screwed this past decade; with the rise of the Euro, the cost of buying goods from them became more expensive internationally, which hindered economic potential.
How so? Germany has always manufactured quality product, and customers for said product will continue to buy German because they appreciate quality over price.

All my US gear falls apart if you look at it. All my German gear is going to be around a long time after I'm gone. So I buy German if they're selling the product I need.
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Sep 11, 2011, 05:03 AM
 
Originally Posted by Lateralus View Post
The American economy is actually doing fine and is plenty productive;
Really? The US economy has received several severe blows in the last five years: a humongous banking crisis, the crisis of the US car industry and a runaway budget deficit which is on the verge of destabilizing the whole US economy. Your comments are reminiscent of those people have made about the Big Three. There are plenty of US companies making money, but most of the jobs are created outside of the US (your iPhone may be designed in Cupertino, Californa, but it is assembled in China).

Germany's slow but steady growth is also not unproblematic, though: a sizable portion of the new jobs that have been created are temporary and/or in the lower income range. That means the growth of the economy does not translate into a higher standard of living. This, I think, will be the biggest problem of our generation, but I digress.
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turtle777
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Sep 11, 2011, 09:41 AM
 
Originally Posted by OreoCookie View Post
@turtle
First of all, the FED has run out of options while the ECB has more options left.
This statement is only true when put in proper context.

The FED *has* run out of options that would present a REAL fix and sustainably help the real economy.
However, they have NOT run out of options to just print money and kick the can down the road a little further.

The ECB on the other hand has very limited options left because its hands are tied due to a more complicated political setup and due to a generally higher level of fear of inflation in Europe than in the US (due to historic events).

Originally Posted by OreoCookie View Post
Secondly -- and much mort importantly, all the FED or the ECB can do is put a band aid on to mitigate some of its effects of the current crisis. It cannot solve any the problems.
Yes, exactly.

-t
     
turtle777
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Sep 11, 2011, 09:46 AM
 
Originally Posted by Lateralus View Post
Germany in particular, since it's an export economy.

Germany really has gotten screwed this past decade; with the rise of the Euro, the cost of buying goods from them became more expensive internationally, which hindered economic potential. And now they're shelling out to cover other countries in the union who, comparatively, offer nothing economically.
I think that's an urban (economic) myth.

The idea that a weak currency is great for exporting is sheer theory and bears almost no significance in real life.

1) A weak currency speaks of a weak state of the general economy, policies and political affairs. It comes with inefficiencies and waste of money, poor strategic decisions on part of the economy and politics. It's a very bad environment for world class products to be made for export.

Case in point: Zimbabwe should have been an export powerhouse if a weak currency was really all that meaningful.

2) During the expensive Euro period in the last two years, Germany has done better than ever in exporting and making goods for the world market. If a high Euro would have been that detrimental, Germany would have been on and off in recessions throughout the east years.

Yes, a strong currency presents challenges for the exporting industries, among others, the need for more manufacturing efficiencies and productivity. A smart and skilled country like Germany can meet that challenge, as we have witnessed.

-t
     
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Sep 11, 2011, 10:45 AM
 
Originally Posted by turtle777 View Post
However, they have NOT run out of options to just print money and kick the can down the road a little further.
The FED cannot lower interest rates anymore, they can only raise them -- unless they want to pay people to accept bonds Also printing money is not the option it used to be, unless they want to risk inflation (which could be also be a good thing since it effectively lowers the value of the budget deficit).
Originally Posted by turtle777 View Post
The ECB on the other hand has very limited options left because its hands are tied due to a more complicated political setup and due to a generally higher level of fear of inflation in Europe than in the US (due to historic events).
I'm not so sure whether the ECB has limited options. By design, it was originally modeled after the German central bank which followed a different philosophy than the FED. Even though this is slowly changing, I think the ECB is still following a different strategy. As a matter of fact, I think given the vast difference between these two monetary regions, it may not be a bad idea to use two different strategies.

But overall, I don't think the Euro is over-valued compared to the US Dollar. The situation is just less worse in Europe than in the US.
Originally Posted by turtle777 View Post
I think that's an urban (economic) myth.
...
2) During the expensive Euro period in the last two years, Germany has done better than ever in exporting and making goods for the world market. If a high Euro would have been that detrimental, Germany would have been on and off in recessions throughout the east years.
I disagree: even though a currency does in some way reflect the overall state of that country's/monetary region's economic and political state, a lower exchange rate undoubtedly helps boost exports. The difference between Zimbabwe and, say, the Euro ~10 years ago is that the Euro zone is a stable political region that is a safe place for investments.

The reason why Germany (and other regions in Europe, e. g. Poland) are doing rather well are exports to Asia (in particular China) and not exports to the US as it was a few years ago. German auto companies are exporting like crazy to the Chinese market, for instance. Even though China's currency is still coupled to the US Dollar, its economy is booming and in principle, if the exchange rate were allowed to vary freely, they'd buy even more from us.
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turtle777
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Sep 11, 2011, 11:45 AM
 
Originally Posted by OreoCookie View Post
The FED cannot lower interest rates anymore, they can only raise them -- unless they want to pay people to accept bonds Also printing money is not the option it used to be, unless they want to risk inflation (which could be also be a good thing since it effectively lowers the value of the budget deficit).
"unless they want to risk inflation"

That's cute. Helicopter Ben (and his predecessors) have been actively seeking hidden inflation for years.

Inflation has been running around 10% p.a. since 2000, if you measured it the same way that the Reagan administration did.

Alternate Inflation Charts

The FED, under the pressure of the US administration (no matter if Dems or Reps) will print until the system blows up. There is no way those motherf***** in DC will do what's right even once.

-t
     
Lateralus  (op)
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Sep 11, 2011, 03:28 PM
 
Originally Posted by Doofy View Post
How so? Germany has always manufactured quality product, and customers for said product will continue to buy German because they appreciate quality over price.
Whose post are you replying to?

Originally Posted by Doofy View Post
All my US gear falls apart if you look at it. All my German gear is going to be around a long time after I'm gone. So I buy German if they're selling the product I need.
Again; whose post are you replying to? But since you brought it up; what 'US gear' of yours is falling apart? Because American manufacturing as an entity has several problems, none of which is quality of manufacture.

Originally Posted by turtle777 View Post
I think that's an urban (economic) myth.

The idea that a weak currency is great for exporting is sheer theory and bears almost no significance in real life.
Then why did Germany post its best quarter of economic growth since the fall of the wall in the quarter immediately after the collapse of the Euro from $1.5x to $1.2x last summer? And why did every economist attribute that growth to a rise in international exports due entirely to the cheapening of the Euro?

---

As an aside, in case anybody else gets confused by my usage of the word 'hinder'; Yes, Germany is setting the example among western countries, but they would be doing even better if it weren't for the Euro's inflated valuation. Particularly when it comes to exports aimed at emerging markets with weaker currencies.

Germany is doing well in spite of the Euro, not because of it.
( Last edited by Lateralus; Sep 11, 2011 at 04:07 PM. )
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Sep 11, 2011, 04:08 PM
 
Originally Posted by Lateralus View Post
Whose post are you replying to?
This one:

Originally Posted by Lateralus View Post
Germany really has gotten screwed this past decade; with the rise of the Euro, the cost of buying goods from them became more expensive internationally, which hindered economic potential.
I thought that was obvious?

You assert that Germany's had a bad time over the last decade. I assert that you're wrong, and that Germany's traditional target markets haven't stopped or slowed in their purchasing of German product.

Originally Posted by Lateralus View Post
But since you brought it up; what 'US gear' of yours is falling apart? Because American manufacturing as an entity has several problems, the least of which is quality of manufacture.
All of it. It's all shite. Except the Apple stuff, which was all manufactured in Ireland or China anyway.

If you don't know the difference between quality of manufacturing and thus the target markets for a country's products and thus the performance of a country's trade, how can you even begin to compare their currencies?
The only hinderance to "German potential" is a general slide towards buying cheap crap within their traditional target demographics. Which hasn't happened.
Of course, Germany's target demographic is somewhat static, but that's only a problem if you adhere to the ridiculous American notion of "constant growth"... ...which is a mental illness, when all's said and done.
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Lateralus  (op)
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Sep 11, 2011, 04:38 PM
 
How is that I take a position in defense of Germany, while acknowledging its successes in spite of less-than-favorable conditions in Europe over the past decade, and you wind up trying to goad me into defending that position as if it were an attack on Germany? Not to mention, completely out of left field, trying to turn the subject of this conversation into a derision of American made goods (while completely failing to cite examples of those goods which you've owned) from a conversation about currency valuation?

After having lived in Germany for 12 of the last 26 months, I'm quite confident in my position and it's not something I've encountered a lot of disagreement with anywhere - particularly among Germans.
( Last edited by Lateralus; Sep 11, 2011 at 05:09 PM. )
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Sep 11, 2011, 06:24 PM
 
Originally Posted by Lateralus View Post
How is that I take a position in defense of Germany, while acknowledging its successes in spite of less-than-favorable conditions in Europe over the past decade, and you wind up trying to goad me into defending that position as if it were an attack on Germany? Not to mention, completely out of left field, trying to turn the subject of this conversation into a derision of American made goods (while completely failing to cite examples of those goods which you've owned) from a conversation about currency valuation?
Goad you? Paranoid much?
You asked a question. I told you the answer. It's not my problem if you didn't understand it, is it?
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Sep 12, 2011, 01:58 AM
 
Look for a small bounce in the Euro unless Greece completely implodes this week. It's pretty oversold. We may get back to the 1.38 level before heading for fresh multi-month lows. But as for why the drop hasn't been even steeper, remember the USD isn't the prettiest pig at the fair either.

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Lateralus  (op)
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Sep 12, 2011, 02:14 AM
 
Originally Posted by Big Mac View Post
Look for a small bounce in the Euro unless Greece completely implodes this week. It's pretty oversold. We may get back to the 1.38 level before heading for fresh multi-month lows. But as for why the drop hasn't been even steeper, remember the USD isn't the prettiest pig at the fair either.
Of course, but it's not 40%~ uglier, is it?
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Sep 12, 2011, 02:25 AM
 
No, it's not, but you're reading too much into the differentials of the forex pairs, at least as it relates to anything much more than banking policies and debt. The Euro has always commanded a premium against the dollar since its inception, and the Euro-zone is in GDP terms a bit large in the aggregate than the US.It would be wrong to discount Europe and the Euro too heavily. Besides, the strengthening of the dollar has less to do with its fundamental attractive than with its value as a haven in a very risk-averse, slowing world economy.

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Sep 12, 2011, 02:31 AM
 
Fair enough, but the Euro was created at parity with the Dollar. And if you look back at valuation history, the Euro spent a good while lower than the Dollar earlier in its life.
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Sep 12, 2011, 09:40 AM
 
I read last night on Flightglobal that EADS, the parent company of Airbus, and a holder of a ton US defence contracts no longer accepts the USD as payment for new aircraft orders or contracts.
     
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Sep 12, 2011, 12:06 PM
 
Originally Posted by Big Mac View Post
Look for a small bounce in the Euro unless Greece completely implodes this week. It's pretty oversold. We may get back to the 1.38 level before heading for fresh multi-month lows. But as for why the drop hasn't been even steeper, remember the USD isn't the prettiest pig at the fair either.
Dead cat bounce.

Other than that, the direction is quite clear.

French banks have their Lehmann moment, Greece will blow up any minute (hour/day/week) now

-t
     
   
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