This post will be a bit "raw" because I want you focus on some European officials commenting on the price of the euro over the last couple of days. Hear what they have said below:
Luxembourg Finance
Minister Jean-Claude Juncker gave comments during a radio interview during
which he said that the U.S. dollar was not reflecting fundamentals and was
undervalued, along with the yen and the yuan.
Furthermore, Juncker added that the euro was overvalued in relation to other
currencies.
European
finance ministers said they are ``increasingly concerned'' the euro's advance
to a record against the dollar risks deepening the economic slowdown in the
region.
European officials need to be
``vigilant, concerned,'' on the euro exchange rate, Luxembourg Finance Minister
Jean-Claude
Juncker told reporters as he arrived for a meeting of his European
counterparts in Brussels today. ``We're afraid to see the evolution of the
exchange rate,'' Belgian Finance Minister Didier
Reynders said.
ECB President Jean-Claude
Trichet, who initially declined to comment yesterday, turned back to reporters to say that the U.S.
``Trichet was clearly responding to
the currency overshooting,'' said Jacques
Cailloux, chief euro-area economist at RBS.
``In the present circumstances we are
concerned about excessive exchange-rate moves,'' Juncker told reporters late
yesterday. ``I'm starting to be increasingly concerned and vigilant on the
euro,'' he said, noting that finance ministers ``have never previously said
that we were concerned on the basis of current circumstances.''
French Prime Minister Francois
Fillon told Europe
``We are going to continue monitoring
closely evolutions of exchange rates,'' Juncker said.
Investors expect the ECB to cut rates
at least once this year. The implied rate on the Euribor interest-rate futures
maturing in December was at 3.51 percent today, down from 4.10 percent at the
beginning of the year.
Also, companies like BMW are starting to "feel the heat" from the rising euro as they've remained "unhedged". They'll explain more on their March 18th conference call. But it seems as though they didn't expect such a strong rise since it should be valued around 1.20 according to them. See the comments below.
BMW's current policy
is based on the euro's purchasing power parity of about $1.20, meaning the
company has run up big losses on currencies by not hedging as the euro
<EUR=> has continued to appreciate.
Expect more of this type of talk to continue as the level of pain starts to reach their threshold. This is the "prep work" that will lay the grounds for the ECB to cut rates later on this year.
Once Trichet finally talks about cutting rates, then you'll likely see "short sellers" start to ease into their positions against the euro. Until this "talk" steps up and gets more frequent, you'll likely see the euro remain at elevated levels against the buck.
Sean Hyman
Editor/Trader
www.money-trader.com
Comments