This from Bloomberg's Chart of the Day, ``The euro’s surge against the U.S. dollar won’t hinder Europe’s recovery from the worst recession in 60 years because revived global trade will blunt the impact of a stronger currency, the Royal Bank of Scotland Plc said.
More from Bloomberg, ``The CHART OF THE DAY shows that euro-area export-related orders rose in October for the seventh time in eight months, according to data compiled by Markit Economics. The gain came even as competitiveness was hurt by the euro’s 17 percent advance in the same period."
“The impact of world trade on euro-area gross domestic product is more than three times larger than that of exchange- rate movements,” said Silvio Peruzzo, an economist at RBS in London. “In the euro area, world demand matters more than the currency.”
Additional comments:
-the purchasing power of a currency is determined by the supply and demand for money. This means that when a currency's domestic purchasing power is on a decline this should be likewise reflected on the relative decline in exchange rate.
-as we discussed in Asia: Policy Induced Decoupling, Currency Values Aren’t Everything, The Evils Of Devaluation, and Bernanke’s Devaluation Is About Debt Deflation, Tenuous Link Between Weak Currency And Strong Exports, it is the markets that matter most.
-Modern markets are complex and are structured in niches. This also means that markets have varying price sensitivity.
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