QUESTION: Marty, you said that the euro would first rise against the dollar and that would lead to a wave of deflation in Europe. Are we close to the reversal in this trend that you said would be the second half of 2026?
FD
ANSWER: The philosophy between the US and Europe when it comes to currency are polar-opposites. The US always wants a weak dollar to sell more widgets overseas, and Europe is still living in the shadow of World War II where the currencies were starting from zero so a rising currency they see as proof of their recovery, yet that leads to deflation and declining trade.
Thus, a strong dollar and weak euro is precisely opposite of the political objectives in both camps. The Plaza Accord was all about forcing the dollar lower in 1985 for trade. They were talking the dollar down but then in 1987 they got together with the Louvre Accord and proclaimed the dollar went down enough. The dollar had already turned down before the Plaza Accord.
When it continued to fall, that is what caused the 1987 Crash because the market suddenly realized that the central bankers could NOT control the currency. These people are NOT capable to controlling the FOREX markets.
We are getting there. It won’t be long now. Just watch the Arrays. Europe is going to impose capital controls. They are trying to eliminate all trade with the USA because Trump is against war with Russia, which they see as necessary to survive. The are looking to ban all software from the USA and they are trying to ban VISA and Mastercard as well. They have been pushing the Sell-America Trade, but this is all going to backfire on them.
Economic growth in the USA for 2024 was about 2.6% compared to 1.1% for the EU. They are dead last in economic growth among the top 5 major economies. They can impose pressure on funds to sell US assets and return to Europe, but we advise some of the largest institutions in Europe and they are NOT buying it. The capitalization of just the NYSE is more than ALL of the European Exchanges combined. The US is still the only place to park huge money. Most of our European institutional clients have hedged the currency risk for now.