historical Dollar index

Syriza Matters

“The insurgent leftist Syriza party secured a momentous election victory in Greece (alt) on Sunday night, throwing down a challenge to European governments determined to resist its demands for extensive debt relief and an end to austerity.”  If you’re sitting there wondering why you care about Greek politics, you are probably in good company.  You should also consider this: “Syriza, Front National and other European anti-establishment parties are partners in a political revolution that appears to be about to sweep the continent.”  Re: this “partnership” of anti-establishment parties, also consider for a moment that the new government in Greece is a coalition between Syriza (“far left”) and the Independent Greeks (“far right”).  “There is a ‘gaping hole at the heart of European politics where big ideas should be.’”  So, when we talk about a Greek exit from the euro, what we are really talking about is the potential for a widespread breakup of the euro altogether.  Naturally there are a lot of people shouting things about the future of Europe on the internet right now, but there’s one pretty large obstacle in the way of “Grexit”: “opinion polls show that a clear majority of Greeks — some 70 per cent — want to remain in the euro no matter the cost.”  So…a lot of uncertainty.  So far, the only selloff has been in Greek bank equity: “the Stoxx Europe 600 is higher on the day (also, technical analysts are giddy for Germany), the euro is unperturbed and even Greek equities are only down around 2%.”  Perhaps investors are “more sanguine than we’d previously expected for the simple reason that they are still basking in the glow of the ECB’s monetary love.”  


Currency Wars: The Dollar Strikes Back

Speaking of monetary policy, Dr. Ed Yardeni thinks Q€ is mostly about depressing the euro: “The euro plummeted to $1.12 on Friday, the lowest since September 17, 2003, and down 20% from last year’s high of $1.39 on May 7…everyone seems to expect that it is heading for parity with the dollar, which would be a 28% decline from last year’s high.”  Someone at the Journal says “investors and analysts are contemplating a broad, cyclical upturn for the dollar like those seen in the 1980s and 1990s…A key question, said Kit Juckes of Société Générale, is what sort of investor sentiment is behind the gains.  He wants to see a ‘good dollar’ rally, in which an improving U.S. economy would drive the dollar higher…More concerning would be a ‘bad dollar’ rally, in which the dollar strengthens because of growing concerns about the health of economies and markets overseas.  That would result in ‘much bigger moves,’ as were seen in the 1990s.”  Meanwhile, Matt Klein provides some interesting analysis to help answer this question: “The euro just hasn’t moved that much against the other G10 currencies when compared to the big swings in the US dollar…This reinforces our view that any weakness in euroland is insignificant compared to the forces powering the rise of the dollar.”  Furthermore, Citibank says the repatriation of US assets out of foreign markets and back into the US “looks markedly different from that seen in the past.  This is because it comes in a (largely) risk-positive environment as opposed to in an environment of widespread risk aversion as was the case with nearly every other episode of US repatriation…Insomuch as this supports expectations for outperformance from US assets, this could see continued repatriation moving forward as investors up allocations to US securities.”


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