Quote:
Originally Posted by Twinkie
The USD is app. 25% undervalued compared to a basket of world currencies - correcting for relative size. The USD is strengthening because the FED more actively tries to stimulate the economy, whereas the European central bank exclusively is focusing on inflation. This indicates that US will be the safest medium term investment bet as recovery will go faster. This is leading investors to buy USD, selling EUR, pushing up the all mighty dollar.
FYI: The 700 bill. rescue plan ?only? adds 7% to the current US deficit. The US has much bigger probs. ahead..
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The Federal Reserve has a dual mandate.
1) "Protect" the economy.
2) "Protect" the dollar (e.g. keep inflation down).
The European Central Bank has only 1 mandate.
1) Protect the Euro (e.g. keep inflation down).
Because of Germany's history with hyperinflation and the political aftermath of it (e.g. Hitler) they insisted that protecting the currency be the sole mandate of the ECB. Only then would they agree to use the Euro as their currency.