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 Chris Temple
At long last, we’ve recently heard cries of “Uncle” from some quarters where the U.S. dollar’s relentless decline—and the corresponding increase in other currencies—is concerned. As a result, there have been some significant market developments over the last several days. They are not ones likely to change the many longer-term trends that have become evident over the last year or two. However, these changes have been affecting many investors, especially those who were unprepared for them.
On the currency front, the highest-profile grumbling has been coming from the European Central Bank, whose currency has been the most prominent gainer among the major ones versus the greenback. On Monday, the dollar’s decline against Europe’s common currency reached new lows of over $1.29 per euro. Then, new E.C.B. President Jean-Claude Trichet publicly expressed concern for the first time over the “brutal” rise in the euro’s value, one which has hurt exports from the Eurozone and threatened its fragile recovery.
As a result, we’re finally seeing an overdue correction in the euro’s ascent, together with a commensurate respite for the dollar, now that at least someone in such a position has decided to fire a shot across currency traders’ bows. Today, we’ve dropped back to just below $1.26 per euro. What’s been interesting about the currency markets, though, is that the dollar has NOT enjoyed similar rebounds against most other currencies. Against the yen, in fact, it has hit another new low this week below 106 yen before bouncing; and this in spite of yet more Bank of Japan intervention.
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