Friday, April 13, 2007

Where is this all going to end???

Super-euro may spark a currency war while French battle the ECB

"This isn't about yields any more: the carry trade is driving everything," said Simon Derrick, currency chief at Bank of New York."What worries me is that this could lead to currency wars. China's reserves have reached $1.2 trillion (£606bn), that's up $200bn since November. This could be the catalyst for conflict if handled badly,"

Posted by sovietuk @ 10:06 PM (525 views)
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4 thoughts on “Where is this all going to end???

  • You don’t need to fight wars anymore if you have enough cash, the chinese for example could quite easily ruin some major economy’s by for example dumping US dollars and buying euro’s.

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  • I think much of the blame should be on Japan, they are fueling the carry trade with ludicrously low IRs. US is probably doing not bad, they want a weak dollar, at least for the moment it is helping with their trade deficit. They are exporting unemployment to Europe. China dumping dollars? That s what Paulson begged them to do a few weeks ago… no way China will let its currency appreciate.
    In the short term, the carry-trade is influencing the currency rates more than anything else, but in the long term you will have trends reverted. Long term equilibria are driven by inflation, purchase parity etc, and Yen and USD (lowest inflations) will have to revaluate… but again, who can tell?

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  • Hang on you can’t blame Japan necessarily.

    The carry trade is a result of market forces brought about by that central banking requirement to stimulate demand in the Japanese economy. The issue is that Japan has so much wealth that the knock-on effect is huge.

    That is also why the yen is seriously undervalued and the GBP and USD seriously overvalued.

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  • Apostrophe Man says:

    “the chinese for example could quite easily ruin some major economy’s by for example dumping US dollars and buying euro’s”

    No – the Chinese for example could quite easily ruin some major *economies* by for example dumping US dollars and buying *euros*.

    Apostrophes represent contraction (e.g. won’t, don’t, isn’t) or possession (Tom’s, Dick’s Harry’s) but NEVER to form the plural of a word.

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