WSJ.com is available in the following editions and languages:
Thank you for registering.
We sent an email to:
Please click on the link inside the email to complete your registration
Please register to gain free access to WSJ tools.
An account already exists for the email address entered.
Forgot your username or password?
This service is temporary unavailable due to system maintenance. Please try again later.
The username entered is already associated with another account. Please enter a different username
The email address you have entered is already in use.Please re-enter the email address.
Send me information about more WSJ features
Create a profile for me in the Journal Community
Why Register?
Privacy Policy | Terms & Conditions
As a registered user of The Wall Street Journal Online, you will be able to:
Setup and manage your portfolio
Personalize your own news page
Receive and manage newsletters
Receive and manage newsletters
Remember me Forgot your password?
Digg
Have euro traders lost their minds? What on earth is the common currency doing up at $1.38 against the dollar? It is close to its strongest level since November.
This is weird, and it has market insiders scratching their heads, because periods of geopolitical stress normally lead to euro weakness against the greenback. Fear up, dollar up, euro down. Simple.
So what’s going on now? The market appears to have decided that the Middle East crisis and the potential oil crisis are bad for the dollar. But it’s hard to see it as good news for the euro. And the long-running sovereign debt crisis has not gone away.
It’s mostly down to central bank policies. The market is convinced, with good reason, that the ECB will raise interest rates well before the Fed, which supports the 17-country currency in any case, but particularly since we could all be heading for an inflation-boosting oil price rise. The ECB, in other words, is seen as better placed to deal with an oil shock. Hence the oil-shock-bad-for-dollar trade.
Some of it is also down to typical correlations with oil. Crudely speaking (geddit?), when the oil price rises, the euro does too. You can argue for hours why that correlation works, and which comes first, but it’s pointless. Fact is, it’s a correlation that’s tough to ignore.
All of this makes reasonable sense, but it misses some important points.
As Goldman Sachs pointed out Wednesday, Italy and Spain are unusually reliant on oil and gas imports from Algeria, Libya, and Egypt. A supply shock would not exactly help Spanish and Italian growth, surely.
Secondly, nothing has really changed in terms of the euro-zone debt crisis. The strains are still there. And, not to worry you or anything, but it’s three months since Standard & Poor’s put Portugal on review for a possible downgrade. Guess how long these review processes usually (not always, but usually) last?
Three months.
Good luck, euro fans.
Yahoo! Buzz
MySpace
Digg
del.icio.us
NewsVine
StumbleUpon
Mixx
Error message
The Source is WSJ.com Europe’s home for rapid-fire analysis of the day’s big business and finance stories. It is edited by Lauren Mills, based in London.
Read Full Article »