June 16 (Bloomberg) -- The euro may extend its decline to a level last reached in 2003 on Europe’s sovereign-debt crisis, according to Sophia Drossos, co-head of global currency strategy at Morgan Stanley.
The shared currency will fall as much as 9 percent to $1.12 as the market forces the 16 member nations to rein in spending on programs such as welfare and retirement benefits, Drossos said in a radio interview today with Tom Keene on “Bloomberg Surveillance.”
“There are structural problems in Europe that aren’t going away any time soon,” said Drossos. “The euro still has further to decline.”...
Comment: What is this lady talking about? What are "structural problems"? I guess anyone has some. Anyway, the exchange rate of a currency is not determined by "structural problems", but by such things as relative trade performance and relative interest rates along with some general consideration about financial and socio-political stability. Where are the weaknesses here of the eurozone compared to major other currency areas? The euro area's position to the rest of the world, for example, is largely free of trade imbalances or debt. Interest rates are slightly higher. Finally, much more could be said about financial and socio-political stability in the eurozone compared to the US and other parts of the world. The euro has one thing in common with the other currencies, and that is that it is a fiduciary money based on fractional-reserve banking. Therefore not more trust shold be put into the euro than in any other currencies. However, as one must keep money in some kind of curreny, and any currency that is available is a fiduciary money, one should prefer the money of a region that is not in debt with the rest of the world. What makes the dollar inherently weaker than the euro is exactly this: that in the long run the US cannot maintain their payment ability against the asset holders abroad and must willingly or not resort to inflate the dollar. All major currencies have an internal debt problem of extreme proportions. Yet in addition to its internal debt problem, the dollar has also a massive external debt problem. Before the euro breaks down, the US dollar will come down.