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Word Count: 931
Market players are notoriously knee-jerk in their thinking and the recent price action on the dollar versus the euro which incidentally has spilled over into the cocktail party circuit is being ascribed to the renewed round of structural fumbling within the European Union which was triggered by the French non to the European constitution back at the end of May This together with fresh signs of weakness in some of the major European economies will finally push the ECB--so the analysis goes--to cutting rates with the Fed at best on hold at worst still tightening this will continue to keep pressure on the euro My belief incidentally is that the French non really signals a hiatus in the inexorable logic of globalisation but more on that another time The yen on the other hand is hostage to the possibility that China may revalue delink change baskets do something sooner or later which will give Japanese and other Asian exports a boost Hence the yen despite having weakened against the dollar remains relatively strong--indeed it has gained 7 per cent against the euro since mid-April Thus the argument continues the dollar isnt strong its just that the euro is weak I mean how can the dollar be strong--remember the twin deficits America has been living beyond its means for years and--again sooner or later--the piper has to be paid right Now a month or so ago the US deficits had--surprisingly--slipped off the mental screen of the market They came back with a bang last week with the release of the most recent round of trade and capital inflow figures which showed--yet again--that capital flows during April were not enough to cover the trade deficit With these arguments once again in the ascendancy even though the symphonic growling of the bears that raged through most of the second half of last year has softened the sound of bulls snorting
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