On the second day after the massive Greek deal in Europe, the Euro has fallen in trading to a point where it has wiped out yesterday's gains. The usual pundits are announcing that traders are having second thoughts about the likelihood of a European slow down and of austerity in Spain and Portugal. The truth is that for whatever reason, the market is raising the value of the dollar as against the Euro. This is not particularly good news for the USA. For many products that the US sells, our chief competitors come from Europe. Europeans are also a major market for US exports. The fall in the Euro will make US products more expensive compared to European ones, thereby cutting sales for US manufacturers. A stronger dollar will make it less expensive for Americans to buy assets in Europe, but iin the current economic climate there are not too many purchases being made in any event. Fortunately, the Chinese currency is mostly pegged to the dollar, so there will not be any adverse change in the Sino-American exchange rates.
Much of the effect of currency moves are uncertain, but one thing is sure: the chance of Europe being a strong engine to pull the world economy out of its downturn has greatly lessened.
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