This week the dollar hit almost rock bottom levels as it became increasingly apparent that Japan’s attempt to curtail the ballooning value of the Yen was turning out to be a dismal failure. The moves taken by the Japan to transfer funds to Japan Bank for International Cooperation had no effect whatsoever. This hardly came as a surprise to analysts and traders who anticipated as much.
It is not surprising that investors are currently more risk averse that usual given the current sentiments over the global economy. To be or not to be seems to be the question when it comes to the possibility of additional quantitive easing by the Federal Reserve. However the braver will no doubt see that this is a great time to invest in the dollar as quantitive easing has probably been, at least to a large extent, discounted already.
It is an ill wind that blows no good and the current focus on dollar woes is sending a breeze of abatement on the pressures on the Euro; however it is a gentle breeze and one that will soon blow over.
Certainly the euro has been holding up well considering the dire state of the European economies. Often there is little rationality in long term positions as the possibilities of short terms gains dominate. Whilst many economic analysts are going as far as predicting the total collapse of the euro, the currency is surprisingly popular.
Is the danger of a euro meltdown being overstates? We think not. It is becoming increasingly apparent that a single currency Europe is unsustainable whilst each individual state has its individual economy. The only way out of the current crisis is to form a United States of Europe where every state has a uniform economy. Should that happen the long term benefits on the euro would be substantial, but achieving such an outcome would be a very painful experience.
In the interim we wait with baited breath on a further announcement by the US Federal Reserve on additional quantitive easing.