The United States has been running a trade surplus for a long time, and a lot of countries have become use to the idea that the States are always there to buy up all of their stuff. But that’s being turned on its head: many foreign currencies and related exchange traded funds (ETFs), have been strengthening against the dollar and the U.S. is starting to consume less.
Voicing concerns over the fast-appreciating euro, French President Nicolas Sarkozy recently stated that the “monetary disorder” has become “unacceptable” and the eurozone may soon become restricted by an overvalued currency, writes Michael Pettis for Wall Street Pit. France is unable to change its own rates to adjust for their appreciating currency because the European euro is tied to a centralized European bank that makes all the decisions. [More on the euro.]
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The U.S. dollar can’t depreciate against Asian currencies because of Central Banks that intervene to keep their currencies on par with the greenback, but the dollar will depreciate against floating currencies like the euro. Export-dependent Asian countries have been heavily buying the dollar, but if they were to switch over to the euro then the euro will still appreciate against the U.S. dollar. The dollar will remain a world reserve currency as long as the United States is willing to accept large trade deficits, which consequently allows the dollar to stay weaker.
Naoto Kan, Japan’s new Finance Minister, retracted his call for a weaker yen after the Prime Minister argued for the yen’s strength to be determined by market forces. Nevertheless, Kan believes it is his job to act against currency moves so as to boost competitiveness in Japanese exports.
- WisdomTree Dreyfus Japanese Yen (NYSEArca: JYF)
- CurrencyShares Japanese Yen (NYSEArca: FXY)