-Frits Bosch- "Help, the euro is getting stronger! It threatens exports"

"Help the euro strengthen against the dollar. That's bad for exports! The ECB should drop interest rates."

We hear that message now in financial get, but also in business where sales are threatened. In itself, it is correct that the euro has become more expensive against the dollar, 1.1. But the cause is not a stronger euro, but a weaker dollar. The U.S. Federal Reserve has started hikes in interest rates faster to curb inflation. In this they seem to be quite successful as inflation fell to 3% in June. This is still above the 2% annualized target. In areas outside the US, inflation is falling much more slowly, especially in the euro zone and Britain. Japan's inflation 3.2% note the country with traditionally low inflation. In the euro zone, inflation is 5.5% and in Britain as high as 7.9%. In the Netherlands, inflation is 5.5%. So there is a substantial inflation level difference between the U.S. and Europe. The U.S. is a champion of curbing inflation. Joe Biden will be pleased: "inflation is relatively low, the labor market tight and the economy relatively strong!"

The expectations around interest rates is that the Fed may be able to refrain from further rate hikes because inflation is falling substantially, while rate hikes elsewhere are likely to continue because inflation is "sticky. Those interest rate hikes do indeed threaten exports, but should reduce inflationary imports, but apparently that doesn't put a damper on things. Should inflation in Europe not want to fall further, then we should really worry: monetary policy would prove blunt. I have argued before that inflation in Europe has been mainly caused by monetary creation (QE) by governments and ECB, although they are throwing off that card.

The expectation may be that the strong euro is of a very temporary nature as the dollar will regain strength as inflation falls elsewhere with a timelag that will return ratios to "normal. Should U.S. inflation persistently be above the 2% target, the Fed can still be expected to raise interest rates. The Fed has that room because the U.S. economy has held stronger than forecast. A recession remained out.

The US economy is stronger that its competitors and US stocks are preferred by investors. These are the two pillars of support that once again make it unlikely that dollar weakness will persist, or that the euro will remain persistently strong. So "Help the euro is strong at the expense of our exports" may only last a short time. But "don't shoot the pianoplayer". Monetary authorities are like people: irrational behavior.

Frits Bosch is an economist and sociologist. He is also the author of "Risk as Obsession", "That's the Risk", "World at a Turning Point", "Unfear among the elite", "Does the Netherlands also abolish itself" and "Feminism in the Workplace".