The turmoil in the euro zone from the Greek debt crisis won’t spur appreciation of the dollar because of Federal Reserve policy, according to Axel Merk, president and chief investment officer at Merk Investments LLC.
“It’s because the Federal Reserve, in both word and action, is pursuing a weak-dollar policy,” Merk said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “In the euro zone, you have these problems precisely because less money is being spent and printed.”
Fed Chairman Ben S. Bernanke lowered the central bank’s target federal fund rate to a range of zero and 0.25 in December 2008 and began increasing its balance sheet to $1.75 trillion through March 2010 in a plan known as quantitative easing. A second round of $600 billion of asset purchases, dubbed QE2, began in November last year and is scheduled to conclude this month.
The Fed’s U.S Trade-Weighted Major Currency Dollar Index, which measures the dollar’s performance against seven currencies, fell to a record low of 68.2405 on May 2.
The slumping dollar has spurred exports, helping President Barack Obama toward his stated goal of doubling U.S. exports. U.S. exports reached a record high of $175.56 Billion in April.
“Bernanke has said going off the gold standard in the Great Depression has helped the U.S. recover from the Great Depression faster,” Palo Alto, California-based Merk said. “Somebody is of the other trade of this and that is the euro zone.”
The euro rose 0.7 percent to 1.4302 against the dollar at 4:57 p.m. in New York after German Chancellor Angela Merkel agreed to compromise and work with the European Central Bank on a debt plan for Greece.
The euro zone, along with export-heavy countries such as Japan, doesn’t require strong economic growth to have a strong currency, unlike the U.S., Merk said. Japan has had “lousy economic growth for the last 20 years,” but its currency, the yen, is strong, he said.