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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (2519)	8/23/2000 11:09:29 PM
From: Archie Meeties	Read Replies (2) \| Respond to of 3536

If the euro sinks further and the ECB's hand is forced to raise rates, Europe would be in danger of aborting its recent growth spurt. If so, any inability of Europe to attract new capital secondary to slowing growth may lead to more euro weakness and yet more european inflation. (This argument of course sees equity markets as a greater attractor of foreign currency than small shifts in interest rates, especially when the spread is small.) In short, if you were waging a currency war, you'd use the euro carry-trade to strengthen the dollar and us equity markets while simulatenously shorting the euro to the point of self-destruction. To unwind this carry trade the ECB would have to raise rates to parity with the us's. As far as the yen, the BOJ has made no fewer than 20 interventions over the past 12 months to suppress the yen against the dollar. Against the euro - well, as I said, the BOJ does not want the usd to weaken against the euro. Any economy dependent on US imports of its real goods is trapped by the necessity of a strong dollar. Unless the ECB's have a trump card, the euro is trending, like all fiat, to zero (although some seem to get there faster than others). One possiblity would be for crude to settle in euros - although this also seems like another short term solution. I had originally thought that Europe would be far more capable of withstanding the inflationary effects of high crude prices given the huge disparity in the per capita consumption of oil vs. the US. The inflationary effects of oil, however, have taken back seat to currency shifts. We'll see what happens if oil becomes a real problem.