January 12, 2004
Dollar falls, then rises on ECB comments.
The Financial Times
reports that the dollar fell to nearly $1.29/euro, then rose after a meeting of the European Central Bank (ECB) expressed concerns about the euro's rapid rise. Which was in contrast to last week's statements that it was not that concerned.
"We are concerned. We are not indifferent," the ECB head said. The comments were a contrast to the relaxed tone he took following the ECB's monthly policy meeting last week.
The euro reached $1.2898 in early European trade as the dollar continued to suffer in the aftermath of Friday's poor US employment report. But the single currency slid sharply following the comments and stood at $1.2792 in early US trade.
Belief that the Japanese government would also continue to prop up the dollar also slowed its fall. So the governments are trying to keep up its value rather than let market forces work. But private traders continue to see weakness.
"The dollar has shown relatively limited ability to gain on good economic news of late, and, in any event, releases next week are unlikely to fully erase the sour taste left by Friday's weak employment report," said Daniel Katzive, currency strategist at UBS.
Rapid change, either up or down, is bad for economic markets since it creates uncertainty. So in that sense it's probably good that various governments are trying to control things. But simply trying to hide the many serious long-term problems in American finances could only serve to set the stage for a more sudden plummet. Perhaps letting the dollar gradually fall as the markets want would be better.
I also feel that the bankers in Europe and Japan have significant private investments in American securities and investments of all types. And that, to a certain degree, they're trying to protect their own wealth, and reputations, at the expense of the interests of their supposed constituencies.
The fact is that their economies are highly co-dependent on the American one, and co-dependency is no better in economic relationships than in personal ones. Sooner or later you have to confront your problems and deal with them. They just don't go away.
The Bush administration is being very successful at using the dollar's fall to hide problems in the American economy. And they're going to keep trying to do that during the election year. And maybe they'll get away with it. As the old saying goes: "No one's ever gone broke underestimating the stupidity of the American public."
I still think it will at least break the $1.30/euro level this week. We shall see.
