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Low dollar is starting to hurt

Posted July 14, 2008

J Christoph Amberger on TFN 60-Second Buzz
American financial gurus consider an overvalued currency the end-all be-all of national monetary policy. European manufacturers and exporters are disagreeing.

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by J. Christoph Amberger, TodaysFinancialNews.com

Baltimore — (TFN): Listen to American financial gurus and you’d think that having an overvalued currency is the end-all be-all of national monetary policy.

Europeans currently aren’t over-eager to agree. The Euro has over-appreciated not just against the dollar. It’s also up 16% against the British pound in two years and about 25% against the Japanese Yen. Even in China, German sellers have seen their wafer-thin price advantage contract by another 17%.

On average, the euro has gained 10% against the 44 most important currencies. The consequences are quite obvious. Euro-denominated exports into the United States are barely higher than in the late 1990s. By the end of 2007, German companies sold less to Japan and the Asian countries than a year before.

The Eurozone’s monthly trade deficit with China has doubled.

A few years ago, the European Central Bank determined that the economically most advantageous exchange rate against the dollar is $1.10-1.20. The current 40-percent overvaluation is somehow being sold as beneficial because it reduces the cost of imports and allows middle-class Europeans to live large on their ritual travel activities.

Still, with Siemens cutting thousands of jobs to counter shrinking profit margins and Volkswagen AG heading to Alabama for the cheap labor, we ought to be approaching the threshold of economic pain.

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Posted by J. Christoph Amberger · Filed Under Featured Video, International Investing, Podcast, Videos 

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