Edward Conard

Top Ten New York Times Bestselling Author

  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

AI Summary. The euro has traded at a premium against the dollar relative to the Euro zone–US two-year forward interest rate differential since reciprocal tariffs were introduced, a decoupling that is milder for the British pound and absent for the Australian and Canadian dollars. The author argues that US and Chinese efforts to weaken their currencies will worsen euro overvaluation.

Robin Brooks Robin Brooks Substack
Date Posted:

Brooks argues the US and China are successfully “muscling their currencies down,” which in turn has led to “massive” Euro overvaluation. He expects the dollar to weaken vis-à-vis the Euro in H2.

Is the euro overvalued as other countries push their currencies down?

Core argument: EUR/USD tracked the Eurozone–US 2y2y forward rate differential closely through 2024 and early 2025 but decoupled after the April 2 rollout of reciprocal tariffs, trading at a premium to that differential ever since.

We’re in a beggar-thy-neighbor world where the US and China are successfully muscling their currencies down. This means the [Euro] has to appreciate by default, so Euro overvaluation is going to get worse before it gets better. The blue line in the top left chart is EUR/$. The black line is the differential of 2y2y forward interest rates in the Euro zone versus the US. I like using 2y2y forward rates because they’re a proxy for where terminal rates will be in any hiking or easing cycle. The striking thing about this chart is that EUR/$ moved very closely with the rate differential in all of 2024 and in early 2025, but then decoupled after the rollout of reciprocal tariffs on April 2. EUR/$ has been trading at a premium relative to the 2y2y forward differential ever since. The top right chart looks at whether there’s a similar decoupling for GBP/$. There is, but it’s much less noticeable. There’s no decoupling of this sort for AUD/$ in the bottom left chart and also nothing comparable going on for $/CAD in the bottom right chart.

Takeaways by Macro Roundup® AI

  1. EUR/USD tracked the Eurozone–US 2y2y forward rate differential closely through 2024 and early 2025 but decoupled after the April 2 rollout of reciprocal tariffs, trading at a premium to that differential ever since.
  2. With the US and China muscling their currencies down, the euro appreciates by default, so euro overvaluation is likely to worsen before it improves.
  3. GBP/USD shows a similar but much less noticeable decoupling from rate differentials, while AUD/USD and USD/CAD show no comparable decoupling.

Related Articles:

  • Currency Moves Can Drive Rebalancing — Trade responds to exchange-rate changes with a lag of roughly 8 to 12 quarters, and after the dollar fell from its mid-1980s peak the US trade deficit dropped from about 3% to about 1% of GDP while Japan's surplus fell from 4% to 2%. The author argues currency appreciation, not fiscal consolidation, drove that rebalancing.
  • The Dollar has Further to Fall — The author argues the dollar has considerably further to fall, noting Federal Reserve data show its real value nearly two standard deviations above its average since 1973, a level matched only twice before, each followed by depreciations of 25-30%. Financing the $1.1tn US current account deficit requires matching net capital inflows.
  • China’s Currency is Now Facing Substantial Appreciation Pressure — China's yuan faces appreciation pressure while Beijing maintains its commitment to currency stability, testing trading partners' willingness to absorb China's growing export surplus. If nominal appreciation is limited to a few percentage points, the real effective exchange rate stays at its depreciated level and China is likely to keep gaining global market share.
Showing 899 database articles primarily about either GDP, Business Cycle, Financial Markets, Growth, Housing, Inflation, Savings Glut/Trade Deficit, or Trade (not deficits)
Currently filtering by: