AN ETERNITY

Unfortunately not. This is not a classic final capitulation move of the last phase of a movement. Those whose position is structurally short of dollars can only hope for relief from good defensive management, which can never last forever, but can be adaptive; or that the miracle materialises that the ECB, tired of seeing how the European news reports open their economic sections highlighting that the euro is sinking, will show its disagreement and this will serve as an excuse for the market to cover its long dollar positions and give the euro some breathing space. It will never be definitive and they will come back again, so they are all in the same boat, every time it depreciates a little, BAM!, they buy it. 

The breakdown of the parity relationship, something of very little real value, is nevertheless highly symbolic and serves as an excuse for many to revise their conceptions and for the media to open up their news. It is difficult to know how the general population interprets the event, but it is not going out on a limb to say that few will like it, and that they will see it as another symptom that things are getting worse. 

That the dollar appreciates in this way always has beneficiaries, but on balance, many more will be hurt. By far. Rarely is it so obvious.   The negative consequences of a dollar in its current state, and more for its velocity and volatility than for the level itself, extend to many areas and globally. The strength of the dollar is not a stabilising factor, on the contrary. It harms world trade, hinders capital movements between countries, increases pressure on emerging economies indebted in dollars, becomes a cause of higher inflation and acts as a restraining factor in financial conditions. A strong dollar is bad news for the global economy. 

That should be enough that sooner rather than later, the consequences and the threat of further appreciation should lead central banks to try to draw a red line. History is full of such episodes. But the circumstances are now extreme, bets on a strong dollar in 2022 were non-existent in practice, meaning that portfolios are not oversupplied with dollars, and the recent monetary tightening and long financial repression make it advisable to hold cash, and in what currency better than the dollar? 

The dollar's only real shadow is the euro. For better and for worse. If the escalation could be halted, many emerging markets would breathe easier. So would commodity buyers, but as commodities are depreciating..., the urgency is less urgent. Not for the emerging countries, whose capital balances are heavily burdened by dollar-denominated debt, which is becoming more and more expensive, both because of the burden of rising interest rates and because of the exchange rate that increases the debt base.  Nothing good comes out of all this, but if little can be done, the less said about it, the better. 

That is why it is very unlikely that really important voices will be raised. For dollar shorts, the "dark side" is still ahead and they have to prepare for a difficult summer.  And if reading the forecasts can offer some consolation, because they do not abandon their modest bias in favour of the euro 6-12 months ahead, in the world we live in, it is better to be disbelieving. 

One semester is an eternity.