Euro strong or dollar weak?
I am frequently surprised by the ability of American media to explain away or minimize the role of domestic factors in the current recession in the US. Washington Post provide the most recent example of this kind of foolishness. Today it featured the following headline:
Exports Not Hurt by Euro’s Strength, Official Says
BRUSSELS, April 15 — Most European exporters are not yet feeling the pain of the strong euro, a European Union official said Tuesday — even as aircraft maker Airbus, which sells its planes in U.S. dollars, called the level “unbearable.”
Now, if the euro was strong, this would be ok. However, if it is the dollar that is weak, then businesses in the EU don’t really have any big problems. Then it is only sales in the US that are affected.
From a business point of view it matters a lot whether it is the dollar that is weak or the euro that is strong - it is only for trade between those two areas that it does not matter which is what. But for all other trade - and an increasing proportion of world trade falls in that category - it matters.
And really, the Euro has strengthened somewhat versus a number of currencies, but the US dollar has weakened by 30-40% against virtually all currencies that count. Therefore it is much more appropriate and correct to speak of a weak dollar than a strong euro!
Competitively speaking, that means raw materials and goods that are imported have become comparatively cheaper for the EU and other countries, while they have become comparatively more expensive for the US.
Thus, the low interest rates in the US and the recession feeds back on the competitive situation of the US in the world economy.
The odd piece of information, strange facts, comments on news, ranting and rambling. Kicks and licks. Fun, irony and sarcasm, often, though, with some serious intention.
I live and have lived in Europe and the US. I like both.
I’m nekkid, so no need to undress me. Don't bite me. I much prefer stroking.
April 18th, 2008 at 6:38 pm
http://markets.iht.com/research/currencies/overview/currencies.asp
It’s both, actually. Seen from a European viewpoint, American goods is cheap, while from an American one, the price of European goods is atricious. I also suspect that many firms have negotiated their contracts in USD; meaning that European firms are losing out because of the rates. This of course also applies to the rest of the world, as the USD is still the reserve currency though we don’t have the Bretton-Woods system anymore.