The fall of the European currency continues

The fall of the European currency continues. The euro touched 1,2335 dollar yesterday in the meeting. Conversely, the Japanese currency continued to fly: the most high of the day, the dollar was exchanged against 91,91 yen and the euro against 113,64. For Ian Stannard, strategist changes in BNP Paribas, the single currency may soon reach a level of parity with the greenback. Moreover, it considers likely intervention against the yen.

The G7 expressed concern yesterday of the volatility of the foreign exchange market, especially the yen. What can happen now

The release of the G7 was not enough to curb the appreciation of the Japanese currency against the dollar and the euro. Surely more than words needed to change the trend. Moreover, the idea of coordinated action of central banks has been rebutted by Christine Lagarde, the Minister of the French economy. Therefore, it is very possible to see the Bank of the Japan (BoJ). It has already done on numerous occasions in the past, very striking. In the first quarter of 2004, the BoJ had sold 14,800 billion yen against dollars. The probability of an action on its part is even stronger that the situation is different from that which predominated in 2003-2004. The current rise of the yen is not based on speculative movements. On the contrary, it is powered by the risky strategies, such as the carry trade unwinding, which is to bet on certain foreign currency interest rate differential. In addition, the Japanese, who have invested massively abroad, repatriating their capital to protect themselves from the financial crisis and limit their losses. That scholarships will be chahutées, that the volatility and the risk aversion will be strong, the yen will continue to advance.

Can monetary policy and bailouts implemented in the United States weaken the dollar

No, I do not think. The US Federal Reserve, which meets Wednesday, should reduce interest rates, of 0.5, probably, but it will not interfere with the environment of the dollar. Other central banks may follow not be coordinated, either each on his side. With the crisis, the evolution of the dollar is more determined by monetary policy. On the contrary, a gesture of the Fed for the economy supports rather the motto. Moreover, the impact of the plans of rescue of the American authorities on national taxation is relative if you look at the initiatives elsewhere. The level of debt of the United States GDP will be roughly equivalent to that of Europe. There is therefore no reason to see the greenback under pressure.

How do you evolve the couple entering in the coming months

I think that you can soon reach parity of 1 euro for 1 dollar. At the end of the year, we believe that the single currency should be worth 1.17 dollar before slipping to 1.07 in the first quarter of 2009. The euro is penalized by economic and political factors: it is more difficult to make decisions the crisis in Europe. On the other hand, Central Europe and Eastern countries are affected head-on. The credit crisis will affect sustainable savings representing a reservoir of growth for the region. Finally, the slowdown in China still argued for an increase in the dollar. Foreign investment will dry up and the capital to return to the United States. To a failure of global growth, the greenback is shelter.