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Euro falls to near parity with U.S. dollar - YouTube
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will face the brunt of this
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damage.
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--
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is the global head of affects
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strategy at rbc and she joins
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me now from London.
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Thank you so much for weighing
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in here.
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The U.S. Dollar strength
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underpinning many financial
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shocks that we see right now
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around the world.
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Why has it strengthened so much
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and can we expect it to
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continue?
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>> I think that is a
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combination of factors.
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You touched on a few of them
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right there.
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The fact that the federal
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reserve is raising interest
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rates, the fact that the U.S.
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Economy is actually sick likely
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a lot stronger than the rest of
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the world, particularly Europe.
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The fact that if you look at
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energy prices in particular,
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gas prices in Europe have been
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skyrocketing.
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And so, even though gas prices
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in the U.S. Are rising, it's
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nowhere year --
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near as much as they are rising
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in Europe.
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You put all that together and
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it creates a perfect storm for
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dollar strength, which is
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clearly creating the downward
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pressure on the euro.
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>> I want to talk about the
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euro.
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Then I want to get to global
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impacts.
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Do you expect that --
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I've seen analysts say that the
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Europe could even go to 92 or
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93.
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>> It is not unreasonable.
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We actually started the year
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expecting the euro to trade at
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parity against the dollar.
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That was before the invasion of
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Ukraine.
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That was before a lot of the
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turbulence we have seen an
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angry markets.
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Given what we have seen at the
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moment, it's not at all
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unreasonable that the Europe --
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euro would trade that weekly.
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--
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a lot of people are very --
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it wouldn't take a lot of good
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news for the --
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to prompt a rally in the euro.
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As the --
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>> Wow.
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Incredible when you think about
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when it launched --
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how does that U.S. Dollar
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strength deep in the financial
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crisis that we are already
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seeing in developing countries?
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Are we at a dangerous tipping
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point here with a lot of those
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vulnerable currencies right
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around the world?
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>> Yes.
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[Inaudible]
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We have seen emerging market
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prices before, where there was
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a lot of borrowing in foreign
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countries currency, mainly
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dollars.
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And then the dollar was
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strengthening.
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It made it hard.
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Now, I think major markets have
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been a bit more selective.
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There certainly those out there
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that have been going --
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but the other thing that is
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creating a lot of pressure is
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this inflation.
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Energy price inflation, food
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price inflation, it creates a
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lot of political pressure as
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well.
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We are seeing that play out
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really extremely in some areas
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of the world.
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>> Absolutely.
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When we talk about the global
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impact here, I, mean even some
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in the United States do not
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like the strong dollar.
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When we talk about things like
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the fed, it doesn't have much
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room to maneuver.
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As you said, just given the
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scope of inflation right now.
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Central bank coordination,
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certainly we saw it in the 2008
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financial crisis, and during
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the pandemic.
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Are we really equipped to see
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any of that, if we do have a
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currency crisis here.
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At this point, we would be more
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likely to see some type of a
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currency war?
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>> What's really interesting
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about the current environment
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as we have gone from a world
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where every central bank wanted
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to weaken their currency, to
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one where actually having a
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strong currencies a benefit
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because you've reduced some of
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those imported inflationary
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pressures.
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In that regard, the U.S. Is
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actually in a pretty sweet
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spot.
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It may not feel like it at the
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moment.
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It certainly creates a lot of
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problems on the rest of the
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world.
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But at the very least, it does
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not mean you are importing
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inflation and the way a lot of
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other countries are doing at
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the moment.
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I think, when it comes to the
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central bank reaction function,
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they are in a very difficult
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position.
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We have not been in this
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environment before, where
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central banks have both
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weakening equity markets and
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economies and also when flay
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shun.
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For a lot of the central banks,
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that mandate --
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I do believe that they will
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hike further and faster, even
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then some markets expect at the
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moment.
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