Thursday, April 10, 2008

The dollar's slide is far from over says Kathy Lien

Kathy Lien, the Chief Currency Strategist of, weighs in on her forex blog site "Why the US Dollar Hit a Record Low". She hits the nail on the head.

"Nothing has changed and if anything, ECB President Trichet has confirmed his hawkishness. US retail sales are due for release next week and with Linens ‘n Things joining Domain, Fortunoff, and Sharper Image in filing for bankruptcy protection, consumer spending will contract for another month. Crude oil and gasoline prices have also hit a record high which is going to hurt consumer spending further. Therefore > The Dollar’s Slide is Far From Over."

Avi Tiomkin in an article for, "The Demise of the Euro", has a different view and opines that "tensions between inflation-obsessed Germany and growth-hungry Latin countries will spell euro's end". He cites Spain's worsening real estate slump and Italy's budget crises as the main wedge being driven between EMU countries. He is also not sure about the public will to have a common currency.

"But with no shared language, customs, culture or political system, the euro zone has never existed except as a construct in the minds of bureaucrats and politicians."

The euro as a real currency between EU countries has been introduced in January 1st. 1999 and exists now for almost a decade. Furthermore the European Monetary Union with its establishment of the European Monetary Institute dates back to January 1st. 1994. You can hardly call this an experiment. It is true that the current credit crises is putting the currency to its first real test, but the outcome is far from certain. Tiomkin offers nothing but catching phrases and he is certainly mistaken in his ideas that the euro is only a construct in the minds of politicians. In todays global world a common currency is appreciated and necessary.

Felix Salmon, who created the Economonitor blog for Roubini Global Economics, does not agree with Tiomkin either.

"It's weird too that Tiomkin advises investors to short the euro, since the departure of a Latin state or two from the eurozone would only serve to reinforce the ECB's ability to fight inflation and maintain a strong currency....The central bank might be unpopular, but that doesn't mean it's going to be abolished."

I must say it is refreshing to see a central bank to be unpopular these days, because it is precisely populism and bowing to political pressure that has brought us into this mess in the first place. I am confident that the European Union and its currency will survive, I am not so confident about the dollar.

Historical Charts of Speculative Positioning in the EUR/USD:


source: Why the US Dollar Hit a Record Low
Kathie Lien

source: The Demise of the Euro
Avi Tiomkin,

source: The Euro Under Attack
Felix Salmon

No comments: