i think that the advent of the Euro as a physical currency is a seminal event...there's huge pent-up demand in the former Eastern Bloc, which has used the D-Mark as its de-facto currency up until recently, and where savers have switched into the dollar due to the uncertainties associated with the changeover. however, with the Euro becoming "real", i expect it to become Eastern Europe's currency of choice. then there is Japan, where recently a debate has begun on the prudence, or rather the lack thereof, of keeping over $400 billion in foreign currency reserves exclusively in dollar denominated assets. i expect that quite a few central banks will change their reserve asset mix in coming years. currently the dollar is massively overweight in most CB reserve portfolios, way out of proportion with the US share of global output.
also, as i expect the US economy to continue to do more poorly than is now generally expected, foreign, especially European, direct investment will continue its recent declining trend. you only need to compare European and US yield curves to see which economic sphere is doing better at the moment, and i think next year we will see more of the same.
and if no dollars come back through the capital account, the heavily stretched current account will become more and more a focus of the market. and eventually, the ECB's conservatism will do its thing as well imo, and enhance trust in the new currency.
currently the market is fixated on "pro-active", "assymetrical response" central banking, as if that were a virtue. it isn't, and perceptions will change in due time. |
