Even though it was pretty clear headed into the weekend that France was going to reject the EU Constitution, currency markets apparently are still reacting this morning. As of this writing, the euro is valued at $1.23, or about 12 cents off its peak this year.
CW has the dollar short because of low interest rates and massive federal deficits, and the euro long because it is, after all, the currency of the world’s second largest economy (the euro zone) and its members have been imposing fiscal and monetary austerity in order to complete economic union.
Leaving aside for the time being the question of the wisdom of free-floating currency markets, and the laughable premise of “efficient markets,” it seems that this market is “reacting” to France’s “non” vote with great apprehension. Are they going to buy yen? dollars? Sterling? Who knows, but the euro isn’t a weaker currency because of this. The economic union of the countries in question has existed in some form or another for almost 50 years. A financial crisis, not a political one, will signal its demise, if there is to be one.
It appears that this may give the Fed and the housing market yet another temporary reprieve, as the bond market reacts to this news as well.
UPDATE: The Euro fell again today. The UK pound only twitched. Given the fundamentals, this is not a bad price for the euro. The Dutch ‘no’ vote means, I’m pretty sure, that this draft of the EU constitution is dead.