"We had decided that money is money and we'll take it and just do the exchange whenever we can with our bank," Robert Chu, owner of East Village Wines, told Reuters television.Now Accepting Euros
"We didn't realize we would take so much in and there were that many people traveling or having euros to bring in. But some days, you'd be surprised at how many euros you get," Chu said.
"Now we have to get familiar with other currencies and the (British) pound and the Canadian dollars we take," he said.
While shops in many U.S. towns on the Canadian border have long accepted Canadian currency and some stores on the Texas-Mexico border take pesos, the acceptance of foreign money in Manhattan was unheard of until recently.
Not far from Chu's downtown wine emporium, Billy Leroy of Billy's Antiques & Props said the vast numbers of Europeans shopping in the neighborhood got him thinking, "My God, I should take euros in at the store."
Leroy doesn't even bother to exchange them.
"I'm happy if I take in 200 euros, because what I do is keep them," he said. "So when I go back to Paris, I don't have to go through the nightmare of going to an exchange place."
Kevin Depew was talking Euros in point number 5 of Thursday's Five Things.
Daily Contrary Indicator: Euros Being Accepted in Manhattan Stores?This weekend while going through one of the closets, my wife and found a decent pile of euros we had forgotten to exchange following a trip. It wasn't quite like winning the lottery, but it was close. That's how beaten down the dollar is.Bank Of England Cut Rates
Anyway, I was running through my head where the least expensive place to exchange them would be when my wife pointed out an article in the New York Times Travel section, "The Greenback Is Losing Appeal." According to the article, East Village Wines, a liquor store on First Avenue, accepts payments in euros as well as dollars.
And this morning we noticed a Reuters article on the proliferation of retailers in New York now accepting euros. Meanwhile, the lowly dollar is up .8% year-to-date even as the Federal Reserve has slashed interest rates by 125 basis points.
In a widely expected move the BOE Cut Rates .25% to 5.25%.
The Bank of England Monetary Policy Committee cut its benchmark interest rate by 0.25% to 5.25%, adding the prevalent market conditions are posing serious “downside risks to the outlook for inflation”.
The Bank of England lowered its rate by 0.25% to 5.25% after a decision by a nine-member governing body. The pound fell against the dollar and euro after the rate decision. Weak retail sales, falling housing prices, and consumer anxieties have all affected the economic outlook for UK. Interest rates in UK are still high among group of seven wealthiest nations and UK is likely to face weakening economy and rising inflation pressures in 2008.ECB Holds Rate
According to the Bank, credit market conditions for households and businesses are tightening and consumer spending has slowed, while output growth is forecasted to further decline.
In the accompanying statement the BoE said, “CPI inflation, at 2.1% in December, was close to the 2% target, but higher energy and food prices are expected to raise inflation, possibly quite sharply, in the coming months,”
The Monetary Policy Committee also said that the lower level of the sterling will increase imports prices while inflation expectations remain high. Pound fell after the rate decision against euro and dollar.
The European Central Bank today held its key rate at 4% citing high upside risks in consumer prices as rising oil prices are forcing companies to pass on the cost to consumersThe change in language from Trichet was "unexpected" and the Euro sank on the news.
The European Central Bank left its rate unchanged at 4% after unanimous decision by governing council of 21 members. The President Jean Claude Trichet signaled that he will consider lowering rates if the economy show any sign of weakness. Euro fell after the rate decision. Before the meeting the ECB had signaled that it is worried that wage rise may fuel the inflation and market had interpreted it as a possible rise in interest rates.
The president in the press conference said that the spillover from the current instability in the financial market into the real economy is not known but the short term inflationary pressure must be contained from spilling over into the medium term economic outlook. The price stability remains the focus of the governing council, reiterated Trichet.
It was not unexpected in this corner. I discussed a strengthening US dollar on The Charles Goyette show on Tuesday towards the end of the show. Click on the link in the upper right hand corner of the blog to play.
$XEU Euro vs. Dollar Daily Chart
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The language change was not unexpected by me and I expect that a fall to the 200MA near 1.41 is in order.
$XEU Euro vs. Dollar Daily Chart
click on chart for sharper image
I am looking for the Euro to fall to the 50EMA on the weekly chart, put in a weak bounce then sink to the 200EMA. The love affair with the Euro is way overdone.
$XBP British Pound vs. Dollar Weekly Chart
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I expect the pace of rate cuts in Europe to pick up the pace and that will be supportive of the US dollar.
Waiting For Signs
Although I have been expecting the dollar to rally against the Euro for some time, I was hoping for a sign of some kind to seal the deal. We now have two signs.
When the US cut interest rates 125 basis points in 8 days and the dollar did not collapse that was the first sign.
When owners of wine emporiums in New York are putting up "Euros Accepted" signs and are also willing to accept the currency risk by holding on to those Euros that is a second and arguably more important sign. These actions are proof of extreme anti-dollar sentiment. Further strengthening the sentiment is talk of accepting and holding Canadian dollars and British Pounds as well.
Given that no one is clamoring to hold the Yen, I do expect the Yen to strengthen against the dollar. This overall scenario, should it play out as I expect, portends a massive unwind of various carry trades. It will not be good for equities when it happens.
With a salute to the Five Man Electrical Band I offer Signs.
And the sign said, "Everybody welcome. Come in, kneel down and pray"The Sentiment Sign Says The US$ Will Rally.
But when they passed around the plate at the end of it all,
I didn't have a penny to pay
So I got me a pen and a paper and I made up my own little sign
I said, "Thank you, Lord, for thinkin' 'bout me. I'm alive and doin' fine."
Wooo!
Sign Sign everywhere a sign
Blocking out the scenery breaking my mind
Do this, don't do that, can't you read the sign?
Can you read the sign?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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