let's consider the Euro which has been
getting stronger this year against the
dollar following the latest set of
extraordinary measures by the European
Central Bank designed to stimulate the
eurozone economy it will buy corporate
bonds the sort of direct lending to
companies the US Federal Reserve was
forced to try during the Great
Depression of the 1930s interest rates
have been pushed into negative territory
and significant portions of the bond
market also trade below zero I get the
continents currency has been getting
stronger perhaps the best view to have
on any one currency at any one point in
time is ignorance or at least deference
to the gods of money who inhabit markets
too deep and ineffable to fathom yet the
ECB is in good company it is one of five
central banks which have announced
looser monetary policy measures this
year looser than many of the investors
and ink honest shooters had forecast
loose monetary policy might be thought
to be associated with weaker currencies
but Japan New Zealand Sweden and Norway
have all seen the value of their
currency rise following the
announcements of fresh stimulus a sign
that markets are losing faith in the
powers of central banks perhaps one way
to think about these moves maybe to take
a longer-term view the recent
strengthening of the yen seemed strange
until we look at where is trading only a
few years ago it remains extremely weak
compared to what a Yemm was worth in
2012 the average rate against the dollar
this century is 160 m to the dollar not
far from the 109 where it was trading on
Tuesday think about the euro in similar
terms and as you can see from this chart
the question is which is the right level
for the currency here where it where it
is traded recently or here the much
stronger level where it traded before
2014 if the century average of 123 to
the dollar is anything to go by the euro
could easily be stronger than it is
today there is also another reason to
think that the euro could strengthen
monetary policy as judged by real
interest rates is perhaps Lusa in the
u.s. than it is in Europe if you
consider this
real interest rates are calculated by
subtracting the rate of inflation from
nominal interest rates BNP paribas here
have compared real rates in Europe and
the US where inflation has started to
pick up pushing negative rates lower
renege ative real rates lower the euro
they argue could strengthen further in
the next few months if it does cheaper
imports would mean even less inflation
in Europe putting further pressure on
the ECB to act but also raising fresh
questions about its power if it does