Guess I should have mentioned this earlier: I’ve been on the road since Thursday, which is why I haven’t been posting much. The regular Curious Capitalist commenter known as “Dad” has a big birthday this month (85!), plus the newest of his grandchildren (who has yet to comment on this blog) is turning 1, so we had a big family hoedown. I made the salad. It was really good.
Anyway, I’m flying back to New York later today, but am currently sitting in a cozy room with my laptop and an excellent wifi connection. So I’ve been catching up on the news, and this particular headline from the Frankfurter Allgemeine (which is one of the first places I look when I can’t find much interesting in the WSJ or FT) caught my attention: Chief economist of Goldman Sachs: “I wouldn’t bet against the dollar”. (Actually, it reads, “Chefökonom von Goldman Sachs: Ich würde nicht gegen den Dollar wetten”, but I don’t think German language competence should be a requirement for readers of this blog.)
The chief economist of Goldman Sachs is Jim O’Neill, a Mancunian who in the late 1990s and early 2000s, when he was Goldman’s chief currency strategist, kept proclaiming to anyone who would listen that the dollar’s high valuation against the euro at the time was ridiculous and unsustainable. So he’s not some kind of dollar cheerleader.
But now he thinks the European governments are so worried about the euro’s continued rise that the European Central Bank might intervene in currency markets to try to halt it. If this met with support from the U.S., markets would be surprised and the dollar would retrace some of its recent decline.
O’Neill also puts the odds of a U.S. recession lower than the 40% to 50% that I’ve been increasingly hearing from Wall Street economists (translation mine):
In my opinion the probability of a recession has not increased, it’s still at about one-third. Exports will compensate for the weakness in the domestic market.
So there you have it. Nobody, including Jim O’Neill, actually knows where the dollar is headed next, of course. But lately, many people have taken to talking as if continued decline is a foregone conclusion. It’s not.