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Little historic perspective: an interesting read of a speech by Bernanke on the failure of gold standard and the global nature of investing.




Once again relevant while watching the stock markets this week world wide stumble on the fears of US dollar sliding to ever weaker position. The softening US economy is putting pressure on lowering the US interest rates while in EU the inflation is still something the European central bank is attempting to put under control.


So why is this relevant? EU and US are the biggest trading partners to each other. At the same time the spread between USD and EUR continues to grow. European companies exporting to US are going to get hit by a weaker dollar. Meanwhile, ECB controlling the European inflation combined with the strong economic forecast especially in the UK and Nordics and Western Europe makes it more than likely that European central bank will raise their interest rates in 2007.


The spread between US Fed interest and ECB rate is going to narrow and the gap is closing towards 4% level on both sides of the Atlantic pond. This will draw especially European owned USD investments back to Euro zone and will have further negative pressure on USD.


Now the question is do you think the hit on EU exports towards US will offset the currency slide from US to EU?


PS. Thanks for fixing the paragraph issue so quickly.


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