Sometimes, OJ, it's just fish in a barrel.

The European economies for the most part are in disastrous shape with high unemployment and zero or negative growth. The artificially high Euro has been killing them. Why was the Euro high? My bet is that it was a political move designed to wean OPEC off the dollar and persuade them to use the Euro instead. The goal was to make the Euro the world's reserve currency instead of the dollar. (Of course, what makes yours the world's reserve currency is the fact that you are the world's safe haven. What makes you the safe haven is a large military capable of showing up anywhere and causing people serious hurt. The Euros didn't understand it but then why do you think that France is also known as Gaul?)

As we watch the Middle East steadily shift from Ba'athist and/or theocratic autocracies to democratic forms, are those states really going to switch from the currency of the people pushing democracy to that of the people who supported dictatorship and exploitation?

Now, the EU, which decided to behave like a big France, has oeuf sur le visage. They are losing influence in the Middle East, their economies are suffering, their militaries are falling another generation behind America's, the US is finding new and growing allies like India which two decades ago would have been firmly in the EU camp, etc.

Since the artificial run up of the Euro has failed to achieve its goal, whatever that was, and has certainly contributed to the disastrous performance of European economies, the Euro has hit the wall and is starting to seek a more realistic level.

Unless you are a large Third World country with huge amounts of unemployment and low-skill labor that requires you to collect lots of colored paper from other countries in order to sell them your products at a price that makes sense for them, you really can't affect currencies for a long time through government intervention. You can keep the Renminbi artificially low but you can't keep it artificially high for any period of time.

Bart:

They had to keep it high during the war to maintain the illusion that they still mattered.

Bart and OJ, sure use the word artifical alot. Duh I guess that's why I'm not George Soros and they are. Perhaps somebody would share the secret as to what the "real" value of the dollar or euro is, since I have difficulty figuring it out

Currency markets are very much a rigged game that only people with inside info who play fast and loose on the margins, like Soros, can make money in their speculation. New supply can appear and old supply can disappear in an instant and for no apparent reason. I'm sure there are people of intelligence and honor, Red Sox owner John Henry is one, who can figure this out, but I'd rather take my money to Vegas and bet it on RED than speculate in currencies.

Very simply, a nation or group of nations can decide to increase or decrease the value of someone else's currency by choosing to buy or sell it. We have tons of other people's currencies floating around, we collect them whenever we sell them stuff. The EU can decide to dump dollars on the market, thereby reducing their value. Similarly, the PRC keeps the value of the renminbi pegged at a low level, as pretty much every economic publication on the matter has stated, because they hoard other people's currencies. They do this so they can sell their manufactured goods on the world market.

Is there a 'real' value? Yeah, but everyone would have to start behaving like a rational economic actor, and that ain't happening in our lifetimes.

The current run on the dollar made no economic sense. There is no inflation here. Normally, if the value of a currency drops it is accompanied by massive price increases(see Turkey, Argentina, Weimar Germany). The dollar lost about 50% of its purchasing power against the Euro and it had no impact on us whatsoever. By the same token, when a currency increases in value most of the time it has to do with a nation experiencing rapid economic growth and wanting to slow things down to fight inflation. Europe has a zero or negative real growth economy and has had one for a very long time. Eastern Europe is in desperate need of priming the pump, which the tight money supply that creates a strong currency will not supply. Sometimes an economy will tighten the currency, raising its value, to fight inflation. Europe has no inflation. So why have a tight currency?

On average, in January '04, one Euro was worth $1.26382. Today, one Euro is worth $1.27829.

The sky is falling. The sky is falling. The sky is falling.

All together: Time spent thinking about exchange rates is time wasted.