Strong Euro Threatens Eurozone Harmony
Posted on February 28, 2008
Filed Under EUR/USD |
Yesterday’s dollar slump against almost every currency has raised particular alarm and tension within the eurozone. The head of airbus has already described the dollar’s decline to his company as “life-threatening”. Even Germany’s car-maker BMW has said it will be slashing 5,600 jobs and warned of more drastic action if there was a “sustained rise” in the euro above $1.50! Given the likelihood of the euro rising to at least 1.54 we can expect even more apocalyptic rhetoric and possible intervention by individual central banks. A senior aide to President Sarkozy has already warned the ECB that monetary policy “must remain within reasonable bounds”.
In the meantime according to Hans-Werner Sinn, president of the IFO economic research institute in Germany the pain threshold for the euro is 1.6 and he exhorts the ECB to continue to focus on fighting inflation and that “it would be completely wrong for the ECB to cut interest rates” because “the economy is still doing well”.
It is against this background that today’s speech by Trichet takes on particular significance as the market tries to establish how far he can continue to reconcile these two opposing views while the political resilience of the currency is put to the test.
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