March 12, 2008

More Shortsighted Dollar Speculation

EADS, the Franco-German aerospace group, is preparing to adjust to a “weaker and weaker US dollar” by demanding that its big European suppliers bid for new contracts in the US currency, according to Louis Gallois, chief executive.
Not a good idea when the US dollar is in its weakest. Euro seems more and more like a bubble against the US dollar.

When US deflation hits in force--because US financial institutions have no choice but to reduce leverage--the dollar will start to regain its value. Of course, it might take a long time for the euro-bubble to pop, but it will happen.

For EADS this might be feasible, because much of its income is in dollars as well, but there's no doubt that those suppliers will put considerable risk premiums into their bids for the currency volatility.

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