As European politicians and pundits tut-tut over the ostensible relative deficiencies of American economic policy, pay attention to what is happening to exchange rates.

By itself, the absolute level of exchange rates isn't particularly meaningful — that's really just a matter of scaling. but movements of exchange rates are significant. When the value of one currency is dropping relative to that of another, it means that people are trying to shift holdings in the former to holdings in the latter.

These days, the dollar is generally strengthening with respect to the pound and with respect to the euro, which means that people are trying to increase their share of currency that buys stuff in America relative to their share of currency that buys stuff in Europe.

That doesn't mean that economic conditions in America aren't bad, but it strongly argues that conditions in Europe are worse.

Tags: exchange rates, pricing

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