Tuesday, November 16, 2010

Stop Claiming That The Euro Is Falling Due To Ireland -- That's Wrong

At several points in the last two weeks, you've probably read something like this from Reuters:

"The euro fell below $1.36 and is set to remain under pressure in the near term as investors focused on fiscal troubles in Ireland and Portugal and await meetings of European finance ministers on Tuesday and Wednesday," said Greg Farinella, managing director and head of Treasury and trading at Espirito Santo Investment S.A. in New York.

"The issues in Europe have been very focal the last couple of days and that's lending itself to euro weakness."

It's popular to claim that the euro is getting hit by the PIIGS, but there's just no evidence for this.

Sure, the currency is down sharply against the dollar (4.4%) since peaking at $1.42 on November 4 but if this were really a euro problem, you'd expect it to have fallen similarly against the yen, it hasn't. Instead it's only down 1.6% in the same time frame. As we noted earlier, this isn't about Ireland or Portugal, this is about higher yields in the US, and a firming dollar.

Okay, you say, but the euro is still down 1.6% against the yen, so isn't THAT due to sovereign debt woes? It's possible, but even then we've had evidence lately of a firming Japanese economy (see: last night's GDP) and a weakening European economy. (more)

No comments:

Post a Comment