Tell us what you will do as central bankers of US and EUR. I read some statements attributed to trichet in which he treatens to raise EUR interest rates. Well Trichet is lying. He will do the opposite. He will reduce interest rates on EUR soon. Dollar will go up, Oil will come down. I am selling EUR/USD. I made profits on it some weeks ago, and I sold it early morning today in 1.5815 area. I am calling the bluff of Trichet because I know that not only he is lying, but he will do the opposite of his threat. RFT (Central banker of the world)
I agree with everything said except the part on the dollar. I'm of the school of belief that it's strictly a supply/demand issue. How does lowering the Euro also cause crude to go down? I think crude will soar higher if Tricky Trichet cuts or does not raise as expected.
Because of the weight that the Euro serves in the dollar index, the fact that the euro usually leads the dollar higher and lower in regards to other currencies, and the fact that both the Euro and Oil have, as of late, been performing in tandem as the "anti-dollar". While I do not necessarily agree with RFT, I do agree that a substantial rise in the dollar would be a kick in the gut for Crude. This is also not a trading conversation. Moving this to economics.
Representing the ECB here. I'm going to hike. This is because our mandate is more "inflation topheavy" and we will need to make sure inflation is tame. Yes, we are going to hurt growth. But inflation is more of a concern at this point. As Bernanke, I will be forced to raise rates in 2009, but hold steady now as unemployment creeps up. Even though unemployment may be 5.3% on Thursday, I see it going above 6% by the end of the year as the consumer gets further hurt. Then, in 09, when the ECB starts lowering rates, we will begin hiking.
What would I do? Hike rates up to 7-10% until inflation fell below 1%. What will they do? As soon as they see a down 100 point day in the S&P, they will crap their collective pants and do co-ordinated rate cuts that will set the stage for the next insane liquidity-driven bubble.
Only problem with your thought process, Monsieur Trichet, is that raising rates doesn't do anything for oil prices (which are the cause of most of the topline inflation). In fact, I would argue that you raising rates in the face of a Fed that is neutral or easing actually raises your own inflationary top line through a drop in the dollar. So in fact, you have attributed yourself as part of the viscious circle: raise rates -> euro goes up -> dollar goes down -> oil goes up -> headline inflation goes up -> raise rates -> euro goes up -> dollar goes down -> oil goes up -> headline inflation goes up -> raise rates -> euro goes up...etc..
In this environment of fear, momentum and irrational logic people do not think clearly, a lot of things are lumped together, oil euro who really sees the difference itâs an anti USD trade. Itâs a pyramid and a very few people are not yet on board, I donât think it even matter what central bankers do, there cannot be many more people left to recruit, the inflation bubble will soon burst.
Monsieur Trichet: It's not just the price of oil, my yankee friend. I believe the price of oil will come down as a global slow down takes route. In fact, all commodities should recede, and if not, I think that the Americans will raise the margin requirements which should further spurn a sell-off from the funds. However, my citizenry is demanding inflation control, and we will need to raise rates in the short term. Yes, a strong Euro is hurting our export base, but we believe that the Americans will eventually have to raise rates in 2009, and at that point, we wull start cutting rates to stimulate european growth. And at that point, our hope is that EUR will trading at 1.35 at the dollar.
Perhaps, but perhaps not. If what you think will come to pass does not, then you might be trying to save your EU as a whole at that point. Lisbon treaty be damned, I say!