Euro Sinks to a 19-Year Low as the Dollar Continues to Strengthen, For How Long?

July 5, 2022

•

7:40 pm

•

38 comments

•

Economics

Euro chart courtesy of StockCharts.Com annotations by Mish

Peak Euro

The Euro continues it’s plunge towards parity with the US dollar.

In 2008, it took 1.60 dollars to buy one Euro. Now it takes 1.03 dollars.

US Dollar Index

*Dollar chart courtesy of StockCharts.Com annotations by Mish*

Unsurprisingly, if the euro is weak, the US dollar rates to be strong.

The Euro is 57.6 percent of the US Dollar Index

US Dollar Index Components

*US Dollar Index chart courtesy of ICE Futures.*

Strength in the US Dollar is Easy to Explain

I discussed the dollar on June 30 in Strength in the US Dollar is Easy to Explain

The Euro is 57.6% of the index, the Japanese Yen 13.6%, and the British Pound 11.9%.

That pretty much tells you all you need to know. Here are some related details.

The ECB and Bank of Japan still have negative interest rates.
The Fed is on a huge rate hike and QT rampage
Japan has pledged to defend its 10-year rate to under 0.25 percent.
The ECB will not start QT until some time in the third quarter with no hint of when.

For the First Time Since 1991, Germany’s Trade Surplus Vanishes

Also note For the First Time Since 1991, Germany’s Trade Surplus Vanishes

The US has the strongest economy and is moving the fastest on rate hikes and QT.

Question of the Day

Q: When does the dollar rise stop?
A: When the Fed stops tightening as much as expected (hikes and/or QT) or the ECB starts tightening more than expected.

But with Powell’s repeated insistence on bringing down inflation, a strong US dollar aids that purpose.

There’s your strong dollar. One of my readers put it this way “Prettiest gal in the whorehouse.”

Meanwhile, Rent is Still Rising, Compounding the Fed’s Recession Woes

This post originated at MishTalk.Com.

Thanks for Tuning In!

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

38 Comments

Newest

Oldest Most Voted

Inline Feedbacks

View all comments

MPO45

1 year ago

Someone was asking about Brexit. Here ya go….

link to thelondoneconomic.com

Esclaro

1 year ago

A lot of Third World debts are in dollars. These defaults will probably cause the next financial crisis. In the meantime US exporters are being destroyed – look for the biggest trade deficits of all time along with huge job losses. DXY roared past 107 today – here we come 120 and the days of destruction!

Cocoa

1 year ago

It’s easy to explain. Everything is denominated in dollars. The financial system is based on dollars with some minor players like euros and yen. If you have a massive drawdown and even foreign countries created bonds in dollars well…you need dollars to cover.

KidHorn

1 year ago

Strong USD can be explained by interest rate differential. Carry trade. Also, there’s an increasing risk of euro collapse.

Six000mileyear

1 year ago

A stronger USD is going to hurt China. China’s currency is pegged to the USD, so when European customers buy Chinese goods, it will take more euros.

JackWebb

1 year ago

Reply to Six000mileyear

Hard to imagine the yuan/dollar peg holding for very long.

T3064wj

1 year ago

Has anyone but me noticed the Fed hasn’t started QT yet? Their balance sheet actually grew a bit in June. They bluffing?

Fiatcurre…

1 year ago

Reply to T3064wj

Surely you can’t be serious? They’re not selling assets but letting then mature to expiry. When would that begin?

davebarnes2

1 year ago

When it goes to 85¢ USD to 1€ EUR as it was for one of my trips to Europe, then I will get excited.

Captain Ahab

1 year ago

I wonder how the Brits feel about Brexit about now?

TexasTim65

1 year ago

Reply to Captain Ahab

Maybe any Brits who lurk on here can respond.

There used to be a poster called ‘AvidRemainer’ who obviously wanted Brexit to fail. Haven’t seen him since it officially happened. Would be interesting to see how he feels these days.

Scooot

1 year ago

Reply to TexasTim65

He’d probably say “I told you so” and point to GDP forecasts that predict how poorly we’re going to do in comparison with Europe like one of my mates said to me today.

Scooot

1 year ago

Reply to Captain Ahab

I’ve always thought the Euro, and eventually the EU, would fail eventually so I’m pleased we left. Some of my remainer friends are focussed on the domestic mess we’re in, inflation, strikes and a bunch of idiots in charge, and blame some of it on Brexit.

JackWebb

1 year ago

Reply to Scooot

I am a stupid and insular American, so this will prove how dumb I am. I figure there were a number of reasons (not at all mutually exclusive) for why the Brits went Brexit, starting with anyone more than about 100 miles out of London wanting to stick it to them just for the hell of it. This American living in the intermountain West — the vast region between the Cascades and Sierras and the Rockies — connects viscerally to the resentment of arrogance. Oh boy, do I ever, and I have the guns and the ammo to show for it. Flyover country, you say? Just wait.

Closely related would be that the EU poo-bahs are elected by no one, and when it’s all said and done their communiques are in French, or translated from it. There’s a reason why French is the diplomatic language. It’s imprecise as all get-out. A French couple can have a 15-minute conversation before the one of them heads to the grocery store, and the Designated Shopper still doesn’t know what (s)he should pick up for dinner. The Swamponsters of Washington, D.C. are bad enough, but they are rustic amateurs compared to the French.

Next is that the whole thing was invented by a dozen European multinationals to reduce border guards and their costs. Actually rather laudible, but anyone who ever thought it would “unify” Europe needs to fly on over to our Primitive Land for some meth. No one hates Europeans like other Europeans. After a while, it became a game for me to figure out who was hated in whatever country, and then play the Innocent American who stumbled across some distinction and just happened to draw a conclusion that would fetch me a free glass of wine or pint of beer. LOL

Scooot

1 year ago

Reply to JackWebb

I enjoyed reading that, a bit late, only just seen your reply. I couldn’t begin to list all the reasons for and against Brexit. Originally EU was called The Common Market, which is what it was, a free trade zone, I don’t think anyone in the UK has a problem with that. However it gradually changed.

This report called The Gravy Train tells you everything you need to know about the EU.

link to youtu.be

honestcreditguy

1 year ago

I have USD at 132 on blow off top…

Eighthman

1 year ago

I wanna know if most of the recent trade crash in Germany was because of energy. If it was, the whole EU/Euro is doomed

HippyDippy

1 year ago

Reply to Eighthman

I’ll try and find it, but I saw an infograph showing the rankings of buyers of Russian oil for the first 100 days of that distraction. Germany tops the list during all of it. China being the number 2.

HippyDippy

1 year ago

Reply to Eighthman

Thought I knew where that graphic came from, but I didn’t.

Tony Bennett

1 year ago

“The Euro continues it’s plunge towards parity with the US dollar.”

…

Spain 10yr … 2.28%

Greece 10yr … 3.36%

Portugal 10yr … 2.27%

Italy 10 yr … 3.13%

Ireland 10y … 1.87%

If Lagarde plans to keep PIIGS from blowing up … Full On Kuroda …

link to yardeni.com

shamrock

1 year ago

Is it cheap to vacay in Europe now? A friend got a nice 3br apartment on Airbnb in Athens last month for just over $100/night.

P.S. Gold, Silver, Copper, etc are all also sinking pretty low against the dollar.

Tony Bennett

1 year ago

Reply to shamrock

Commodities sinking … China big importer … I “think” their economy coughing …

shamrock

1 year ago

Reply to Tony Bennett

Gold is not a commodity though. The chart does not look good.

Doug78

1 year ago

Reply to shamrock

Wheat and corn prices are also collapsing. It’s liquidation of just about all financial assets.

Bam_Man

1 year ago

Well, considering the fact that the ECB’s overnight deposit rate is still NEGATIVE 0.50% while inflation is running at 10%+, I am surprised that the Euro has not collapsed even more (yet).

I suppose the “coup de grace” will have to wait until Germany announces that it is “temporarily” leaving the Eurozone sometime in the next 12-18 months.

JackWebb

1 year ago

Reply to Bam_Man

I agree with you about the euro still looking too high. I wonder how much of a Fed rate increase this has priced in. 50 bp later this month, or 75 bps.

Also, I see these comments from Powell about being “nimble.” He surely means that as reassurance, but I find it to be the opposite. It tells me that the Fed is reacting to noise. It’s a balance, of course, but it sure as hell doesn’t come across as any sort of real conviction.

Eighthman

1 year ago

Reply to Bam_Man

I’m not clear on how going back to the Mark helps them.

Bam_Man

1 year ago

Reply to Eighthman

Going back to the DM will help them in several important ways. I would say that among the most important are:

1) They will be able to get their inflation rate under control.

2) They will be able to trade around ECB-imposed sanctions and buy their crucial industrial inputs from whoever they want and much more cheaply.

And don’t even think about coming back with “The weak Euro makes their exports more competitive” nonsense. Their export sector is collapsing as we speak – in part due to the weak Euro.

JackWebb

1 year ago

Reply to Bam_Man

Were the Germans against the sanctions? If they left the euro, it would take time (how much I don’t know), and something tells me they’d still wind up on the hook for those PIIGS. Hard to imagine the Germans walking away from the euro. Decision is way above my pay grade.

TexasTim65

1 year ago

Reply to JackWebb

Walking away would cost Germany a lot of money obviously since the PIIGS would have to default on a bunch of debt.

But long term they’d be much better off. Able to set their own interest rates, no longer have to bankroll the PIIGS, can set their own energy policies (who to buy from, how much carbon to emit etc) based on their needs for their export economy.

JackWebb

1 year ago

Reply to TexasTim65

The crisis is here now. Even if Germany wanted to shitcan the euro, they really don’t have the time.

Doug78

1 year ago

Reply to JackWebb

This is why Germany won’t walk away from the Euro.

link to tradingeconomics.com

Tony Bennett

1 year ago

Reply to Eighthman

Between rock and a hard place.

Continue to bail out eurozone … or bail out their banks.

German banks have been the banksters for the weaker eurozone countries. Vendor financing for their manufacturers.

Doug78

1 year ago

Reply to Bam_Man

Unlikely. Their largest market by far is the EU market. China and the US together account for only 16% of their sales with the EU accounting for just about all of the rest. If they go back to the Mark the value would shoot up making all those things they sell in Europe too expensive to buy. It would be cutting their own throat.

vanderlyn

1 year ago

Reply to Doug78

BINGO. the germans and french spent decades putting euro together. it’s a miracle it worked in one of the bloodiest continents in history. not a shot germans bail on euro. they need the currency to export to rest of europe. they know they are played by the PIIGS but still better than alternative.

Doug78

1 year ago

Reply to vanderlyn

Those that say the opposite never looked at who buys German exports.

TexasTim65

1 year ago

Reply to Doug78

A big problem (mentioned by Mish here many times over the past decade) is that the Germans are essentially lending money to the PIIGS to buy their products. So it *looks* like their export machine is humming along but in reality they are essentially giving the stuff for free to the PIIGS countries because there is no way for them to ever pay back what they are borrowing unless they can run surpluses at some point.

This is why it would be short term pain to leave the Euro but in the long run they’d at least stop giving stuff away for free.

Doug78

1 year ago

Reply to TexasTim65

Germany runs export surpluses to the countries you mentioned and with some those surpluses are quite large. What Germany does like is selling them goods but doesn’t like bailing out those governments when they spend too much but to keep they very lucrative access to those markets they agree to giving some back you might say by very limited bailouts to targeted countries. Mish is a Libertarian so his views on the matter are Libertarian as well but Germans are far from being Libertarians and their views are very different. In any case the last three years have generated really volatile statistics for everybody. If you expect Germany to leave the EU or drop the Euro I wouldn’t hold your breath. None of those are on the table for the principle political parties even with the present difficulties.

Euro Sinks to a 19-Year Low as the Dollar Continues to Strengthen, For How Long?

Share this:

Recommended Articles

Stay Informed

Subscribe to MishTalk