When it is said: “The euro’s real effective exchange rate is approaching a level where it would clearly no longer be in line with economic fundamentals,”
What does that mean? The forex market has a bubble about to burst?
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Sorry, I have no idea what this means. :(
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Whether a bubble is there and whether it is close to bursting or not, I agree with this statement.
The reason I say that is that even though dollar has weakened significantly and Euro has strengthened, the price of essential commodities is still cheaper in real terms in the US than in much of western europe.
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the price of essential commodities is still cheaper in real terms in the US than in much of western europe.
for example?
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gasolene for example. we pay $3.25 a gallon (used to be much lower before Dubya came and mucked uo things). I understand it costs $8+ in western Europe
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So .. that confuses me.
Reason being that oil is traded in dollars in the global market. If the Pound or Euro goes up against the dollar, and the oil price stays the same, Europeans should have cheaper oil. No?
Now if the oil prices go up too than for Americans it will get expensive but for Europeans it should stay the same.
Anywhoo .. do all commodities like food, steal, copper etc. traded in US $?
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Oil is different in that it has a multiplier effect on all other prices.
The main reason for gasolene prices being twice or more in EU vs US I think is taxation.
Beyond that, there may be other fundamentals (such as refining capacity, hedging effectiveness etc) but I really don't know the data.
Fundamentally America is extremely well endowed when it comes to food - not only is the land mass huge, the agriculture advanced but we also have large swathes of South and Central American nations with cheap man power to produce what cannot grow within the US. When I first came eto the US I was shocked to experience food budget which was less than 5% of normal middle-class income!
I will try and find some data about steal etc
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HI,
YOU ARE ALL RIGHT , but what i think the price also depends on the change in consumption, the more there will be industries the more will be oil consumpiton and hence increase in oil prices, on the other hand the indirect taxes is also another factor for increase in oil prices.
smiliarly the war on terror is also responsible for the increased demand of oil in war equipments , and hence a sharp increase in oil prices.
on the other hand if we see the current situtation of IRAN Dispute where IRAN is threatend by NATO, and IRAN will use its OIL resource as reaction is also worsing the situation.
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I was reading the, I think it was the Wall Street Journal where it said the inflation in Europe, especially Eurozone rose 3.6% as compared to US's 0.2% but then in the same report they said something like US number do not include the price of gas.
The only thing I got out from the report was that because EU fears more inflation they cannot cut interest rates and thus a strong Euro aganist US $. But what I didn't understand was why there is inflation in Europe higher than US in the first place?