Chapter 212 5 billion US dollars!

"Since August, the US federal funds rate has remained at 1%, the lowest point since 1958. Correspondingly, the exchange rate of the euro against the US dollar has risen from 1.0516 when we started to short the US dollar to 1.1927 today, an increase of more than 13%!"

When Daisy talked about these data to Barron, she was obviously still a little excited.

In early July of this year, Barron told Daisy that he believed the exchange rate of the euro against the US dollar was about to start an upward trend.

At that time, the exchange rate of the euro against the US dollar had just fallen from the highest point of the year in May (at that time) of 1 euro to 1.1933 US dollars, to 1.09...

The background is that at the end of July 2001, the exchange rate of the euro against the US dollar was only 0.8764. By May of this year, it reached a high of 1.1933, an increase of 36%.

When DS Capital raised funds, borrowed US dollars with 1 billion pounds as margin, and began to convert them into euros, the exchange rate of euro against the US dollar fell to nearly 1.05...

At that time, Daisy believed that after 1.09, the exchange rate of the euro to the dollar would continue to fall below 1...

However, it was ultimately proved that the euro remained strong and did not fall below 1 against the U.S. dollar. Instead, after DS Capital began shorting the dollar-euro exchange rate in July, the euro-dollar exchange rate only reached a low of around 1.05. Then, after the U.S. insisted on continuing to cut interest rates and lowered the federal funds rate to 1%, the lowest point since 1958, the euro-dollar exchange rate began to rebound.

As of today, the euro-dollar exchange rate has reached 1.1927, and is about to exceed the highest point of 1.1933 in May this year.

This time, DS Capital used a 20x leverage and a margin of 1 billion pounds. If the position is closed now, the profit will be more than 5 billion US dollars!

If the exchange rate of the euro to the dollar can reach 1.25 by the end of the year as predicted by Barron's, then their profits will exceed 7 billion US dollars!

This is why Daisy is so excited now, this is the most profitable investment made by DS Capital.

It is worth mentioning that at the beginning of July, the exchange rate of the pound to the US dollar had reached more than 1.6, and it is still rising now. This also allows them to borrow US dollars with 1 billion pounds as a deposit, and their ability to resist risks is constantly improving.

Barron knows that by the end of this year, the exchange rate of GBP to USD will reach a high of 1.7946. Therefore, in addition to their bullish view on the euro against the USD this time, that is, bearish view on the USD, some funds including the Mars Fund are also bullish on the GBP against USD trading pair...but neither the leverage nor the scale is large.

All this, including the depreciation of the US dollar against currencies such as the euro and the pound, is mainly due to the fact that the current US government has begun to abandon their "strong dollar" policy.

The concept of "strong dollar" was first proposed by Rubin, the first Treasury Secretary of the New York government, in mid-1995.

This policy played an important role in the continued rapid growth of the US economy in the late 1990s.

However, since then, although the President of Texas and Treasury Secretary Snow still talk about the "strong dollar", they have repeatedly stated that the exchange rate of the dollar should be determined by the "market".

After all, abandoning the "strong dollar" policy at this time and causing the dollar to begin to depreciate still has many benefits -

First, the depreciation of the US dollar can stimulate US exports and accelerate economic recovery; second, it hopes to reduce deflationary pressure through the depreciation of the US dollar; third, it hopes to create an international trade and financial structure that is beneficial to the United States.

But in the final analysis, the dollar "has to depreciate" is also the result of defects in the US economy. The deeper reason is the annual trade deficit of 500 billion US dollars.

In addition, the strength swap between the US dollar and the euro is inevitably linked to the "acquiescence" of the European Union.

European Commission officials have said repeatedly this year that a rising euro exchange rate is generally beneficial to the economic development of the euro zone.

The European Central Bank also believes that the euro-dollar exchange rate is returning to a level that is "commensurate with the strength" of the two major economies.

This attitude has led to Europe doing "nothing" in adjusting the exchange rate, which has fueled the strength swap between the US dollar and the euro.

The most direct result of the depreciation of the US dollar is that the prices of American products have dropped, and their competitiveness in the international market has been greatly enhanced, which is conducive to stimulating exports and driving overall economic recovery.

The appreciation of other major currencies has relatively weakened the competitiveness of other countries' products, reducing US imports, which is obviously conducive to narrowing the trade deficit and current account deficit.

According to DS Capital's analysis of a number of published data, the U.S. current account deficit in the third quarter of this year is likely to fall from $139.39 billion in the second quarter to less than $135 billion, a drop of about 3.1%.

Secondly, since the inflation rate in the United States is still at a nearly 40-year low, the inflationary pressure caused by the depreciation of the US dollar is extremely small, but it can eliminate the threat of deflation and is more conducive to "healthy" economic growth.

"Merrill Lynch's latest research report estimates that the depreciation of the US dollar to its current level could contribute up to 2 percentage points to the US economic growth rate."

Daisy said to Barron:

"But we can also see that abandoning the strong dollar policy will bring many risks to the US economy. The biggest risk is that an excessive decline in the US dollar exchange rate will lead to a slowdown or even a reversal of foreign capital inflows into the US. Then one of the driving forces supporting the rapid growth of the US economy in the mid-to-late 1990s will be lost, which is extremely unfavorable to the long-term growth of the US economy. From the current perspective, there are signs that more capital is being transferred to Europe, which is probably the reason why the EU allows the euro to appreciate against the US dollar."

"Haha, can't those idiots in the EU see that the appreciation of the euro is not a good thing for Europe? Even if more capital flows into Europe in the short term, the question is whether they can keep it?"

Barron shook his head and said,

"The Eurozone economy has always relied heavily on the driving effect of exports. In recent years, exports have accounted for more than 20% of the total economy. The appreciation of the euro has raised the prices of export products, reduced international competitiveness, and greatly reduced the contribution of exports to economic growth. In addition, the strengthening of the euro has caused cheaper foreign products to flood into the market in the region, increasing the pressure on trade balance. Finally, the profits of many large European companies in the United States and other regions have shrunk significantly after being converted into euros, affecting their future investment. In the final analysis, these are not worth the loss, but now Europe is relatively weak compared to the United States, and it still has to accept their request for the appreciation of the euro..."

After all, this is to some extent similar to Japan's "Plaza Accord", except that the final magnitude is not as large as that of the Japanese yen.

Just like Barron's company, they had already started to convert their US dollar assets into pounds as early as July to avoid suffering too much losses during the depreciation of the US dollar.

Other European companies may not have anticipated this as early as DS Capital did, especially those European companies investing in the American market, which will definitely suffer losses due to the depreciation of the US dollar.

Unless they are willing to hold on to the US dollars for a few more years until the euro starts to depreciate against the US dollar.

"Have you seen this information?"

Barron handed Daisy a document and said,

"According to estimates by the French Economic Situation Observation Association, for every 10% drop in the exchange rate of the U.S. dollar against the euro, the eurozone's GDP will fall by 0.8% in the first year, and by 0.16% in the second and third years. In addition, a previous Merrill Lynch research report also believed that the appreciation of the euro has offset the effect of the European Central Bank's interest rate cuts, and it is expected to cause a loss of 1 percentage point in economic growth."

By now, European companies with US dollar income have begun to busy themselves with hedging futures trading to prevent the US dollar from further depreciating and affecting their euro income. To a certain extent, these actions have also put the US dollar under new depreciation pressure.

However, for Barron, these would not have much impact because he had anticipated them in advance. Besides, he could "eat his fill" all at once through this investment, so he was quite relaxed in his conversation.

"Oh, Daisy, help me collect some information about the Selfridges Group, especially the shareholding ratio of the other shareholders, as well as information about the Selfridge family."

"Selfridges? It seems that their stock has risen recently because the Weston family is interested in acquiring them. This rumor has been circulating since July. Now the Weston family seems to have acquired a portion of Selfridges Group's shares in the secondary market, but the specific share needs to be investigated."