Fed Policy Lifts Greenback

Sam Sherraden — Thu, 05 Jun 2008 16:52:00 -0400

In his most recent speech, Ben Bernanke spoke about the dollar's weakness and its impact on producer and consumer price inflation. Bernanke has moved from focusing entirely on stability and growth to fighting inflation and the dollar decline. Folks such as Martin Feldstein recently said that the US didn't have a strong dollar policy, but it appears as though the Fed may have switched gears to fight inflation, and sees a strong dollar as a means to do so.

Snapshot asks, will the Fed's stance on the dollar continue to push the greenback higher?

Ben Bernanke - Remarks on the economic outlook
PIMCO - Exchange Rates Since the Last Global Financial Crisis: What My Crystal Ball Didn't Tell Me in 1998
Societe Generale - Is the nascent USD rally the last hurray before another fall?
Brad Setser - Does the US still have a strong dollar policy?

Euro Rising, Dollar Falling

Sam Sherraden — Wed, 23 Apr 2008 14:53:00 -0400

The euro may be overvalued, but don't expect it to fall anytime soon. Rising commodity prices have pushed eurozone inflation to a sixteen year high at 3.6% and the European Central Bank remains committed to inflation targeting monetary policy. The ECB recently pushed back against the Bank of England and IMF who claim there is room for rate cuts. On the other side of the Atlantic, recession fears led to aggressive interest rate cuts in the United States. The weak dollar has caused a rise in the price of imports increasing inflation, but also made exports cheaper and more attractive to foreign consumers. The earnings reports from internationally exposed companies in the first quarter of 2008 cited strong foreign demand and better than expected earnings.

Snapshot asks, where will the euro be at the end of 2008?

Daily FX - Euro breaks 1.60, where is it headed next?
Guardian - Corporate hedging may be adding to euro's gains
Morgan Stanley - Why the euro is so strong: a new hypothesis
Societe Generale - Forex Weekly
Bank of Ireland - The euro is overvalued against the dollar
Financial Times - Euro hits record high against dollar
Financial Times - Hawkish ECB drives euro to new high