| The EUR is undergoing a difficult period, as uncertainty reigns regarding the restructuring of Greek, Irish and Portuguese sovereign debt. The ECB has refrained recently from purchasing such debt, partly to push governments to greater efforts to restore confidence, and partly in fear of a populist political backlash against bail-out programmes. The US economy is supposed to be recovering ahead of the overall EUR bloc, and has lower inflationary pressure, so should the EUR therefore not be falling against the USD? |
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| Since the opposite is actually happening, the US must be in an even worse state. Geithner still issues assurances about a strong dollar being the US policy, yet even as he speaks, the USD is reaching new lows. The Fed is still saying that the supply of cheap money must remain until the economy shows itself to be on a path of sustainable recovery. Low interest rates, continued recycling into T-Bonds of debt held by the Fed, plus, in our view, a serious possibility of QE3, all point to further dollar weakness. Again, despite Geithner’s assurances to the contrary, it certainly looks like a policy of driving recovery via exports, rather than through growing domestic demand. |