Today the dollar fell through $ 1.50 against the euro for the first time in 14 months. Since over the last few years this round number has developed to a sort of benchmark, today’s relationship between these currencies was a big event in financial media and formed dramatic headlines in many newspapers. After rather neutral reports on third quarter results from last week, almost all newspapers are now using a language full of temper and aggression again.Among several articles I read about this topic, by far the best one was in the Economist. A clear title followed by a short overview about what happened during the last year and statements about current situation a’ la ‘not necessarily a cause for concern’ show the reader immediately that this article is more about information and objectivity than about drama and exaggerations. The Economist defines the steadily decreasing dollar over the last year as a consequence of risk aversion which is not accompanied by a sharp rise in bond yields since the FED has been buying a lot of the year’s debt issuance. And in the outlook at the end of the reader can find more interesting information: ‘A country heavily in debt to foreigners (..) is creating vast amounts of additional currency. Yet it is allowed to get away with very low interest rates. Eventually such an arrangement must surely break down.’ In my opinion an excellent article and more like a report, the only thing missing are interviews.
As already expected after reading the title, the article in the Wall Street Journal is trying to attract readers by dramatising the given facts. Formulations like ‘impact on nascent recovery’and ‘markets have largely ignored the rhetoric’ are not what I am looking for in a newspaper. From my point of view this in language that can be used in blogs or commercials but is certainly not adequate in a source of information. However, the dollar’s influence on stock prices as well as the interrelation between British pound, euro and dollar is well explained. There can be found interviews with different people ranging from analysts to CEOs.
Definitely the most exaggerated article was in today’s Financial Times. When writing about the current exchange rates they say that it would hit ‘the recovery in the euro zone at its most fragile juncture’ and that ‘the pain (!) will get stronger’. They even talk about a ‘disaster in European industry’ and an increasing unease among politicians. The article does give the least information and is the most dramatic one too read. A little bit of panic is certainly the natural reaction for many readers.
….which is something I do not really understand. Actually this was predictable after the Fed lowered interest rates to practically nothing and threw loads and loads of cash into the economy. The reason is because these actions expand the credit market but at the same time it causes adverse effects to the dollar. A basic knowledge of economics is enough to understand that it is not possible to have a credit expansion and a strong dollar. You can either get one or the other. The main reason for this year’s weak dollar is that people began pulling their assets from the US when markets started going crazy. These days it would be better for the average reader to look at a standard ECO 101 book instead of newspapers.
Sources:
http://online.wsj.com/article/SB10001424052748704597704574486631968841004.html#articleTabs_comments%26articleTabs%3Darticle
http://www.ft.com/cms/s/0/c5d3d652-be49-11de-9195-00144feab49a.html
http://www.japanfocus.org/data/US_Dollar.jpg
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Good 7/10
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