Euro Investors Have Better Things To Worry About Than a Sex Scandal

Euro bills
Euro bills

You might think the arrest of the International Monetary Fund chief while the IMF and others battle the European debt crisis would affect the primary European currency.

Guess again.

After dipping briefly in Asia trading after IMF Managing Director Dominique Strauss-Kahn was arrested and charged with attempted rape and more, the euro recovered and has actually moved up from initial levels.

Strauss-Kahn's problems are "a complete nonevent" for the market, says Robert Sinche, global head of currency strategy at RBS. "The institution is way bigger than one individual. The leadership is just not relevant in terms of what decisions get made on a large issue" like the sovereign debt crisis.

Sinche expects the single currency to return to roughly $1.44, which he describes as consistent with interest rate differentials compared to the United States.

So what else will drive the currency?

"I would note that we had a core CPI number that's worse than expected," Sinche told me. "I think that's way more important than the personal issues of Mr. Strauss-Kahn."

Paresh Upadhyaya, head of Americas G10 FX strategy at BofA Merrill Lynch, has a similar view.

"I find it very difficult to see anything material at this time come out of this that could really present financial market implications," he told me, noting that John Lipsky, who has stepped in for Mr. Strauss-Kahn at the IMF, is well regarded by market players.

Upadhyaya sees the euro settling broadly in the range where it is trading now, between $1.35 and $1.45.

"I think we're fine," he says. "What the markets were thinking before is that the euro is on the cusp of breaking $1.50, and we'd be in a new range of $1.50 to $.160. I thought that was way overdone and quite frankly, ridiculous."

Now that there has been what Upadhyaya calls a "violent selloff in the euro" over the last two weeks, Upadhyaya says, "I think investors may start to look at the euro as a funding currency again," one to sell against higher-yielding emerging market currencies or those linked to commodity prices.

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