Late last week, both Japan and Europe made statements pertaining to the strength of the euro and the yen in light of what was labeled to be excessive dollar pessimism, but the one party absent from the debate was China.
Mr. Lee Hardman, a London based strategist, wrote in a recommendation to clients to take advantage of the dollar pessimism and take a position for a new euro descent.
Ms. Angela Merkel, German Chancellor, told a gathering of prominent members of the European Affairs Committee, that “countries are looking for another major currency besides the dollar”.
Japan was not short on comments about the euro or the dollar either. Bank of Tokyo-Mitsubishi UFJ, advised its clients to sell the euro against the dollar betting the euro would decline to 1.26 versus the dollar on speculation that the Federal Reserve’s commitment to another round of quantitative easing has pushed the dollar too low.
In all the turmoil of comments between Japan and Europe about the direction or even the role of the euro in the currency markets, China has been extremely quiet.
That should not come as a surprise, but what is interesting is the battle in the global currency markets and how the US and China allow two countries to fight the fight.
Both Mr. Geithner and Mr. Bernanke have made it clear that they support a direct market intervention by the Bank of Japan to weaken the yen even when the official position of the US in 2004 was one of condemnation and literally accused Japan of market manipulation.
In the meantime Europe, and primarily Ms. Merkel, banks on the support of eastern Europe to defend a strong euro as an alternative to the dollar from a preferred currency perspective when Ms. Angela Merkel stated last week: “ Many countries in the world are interested in a second major currency area besides the dollar area”.
It seems that the international currency battle is in full swing at the expense of the dollar but it should also be recognized that neither Mr. Timothy Geithner, nor Mr. Ben Bernanke seem to mind the dog fight.
On the contrary, they encourage the fight on both sides even though the outcome will never lead to the expected result. A weaker yen or a stronger euro will never increase US exports nor will it put extra pressure on the yuan-renminbi for that matter.
Japan has already lost its battle against China when it was demoted to third place in world economy ranking and Europe wants to become the alternative of choice versus the dollar.
In the end, China will become the victor with its quest to become the world’s largest economy that also holds the most convertible currency in the world: the yuan-renminbi and plenty of exports that will find their way to the biggest consumer market in the world: the US.
Written by Nick Doms © 2010, all rights reserved.
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