Word Games and the Foreign Exchange Market

French Prime Minister Francois Fillon learned a lesson yesterday about the importance of exactly how senior government officials word their comments about foreign exchange rates.  The French press quoted him as saying (in French): “Depuis des années, avec le président de la république, nous nous plaignons du fait que cette parité entre l'euro et le dollar ne correspond pas à la réalité de nos économies et handicape nos exportations. Je n'ai pas d'inquiétude quant à l'actuelle parité entre l'euro et le dollar.”

In context, the last sentence can only mean that he is not worried about the current exchange rate between the euro and the dollar.  But in English, the use of the word "parity" caused confusion, as this Daily Mail article explains.  Dow Jones also had an article about this (subscription required).

Fillon's sentence right before the two quoted above also propelled the confusion:  “J'ai déjà eu l'occasion de dire que je ne voyais que des bonnes nouvelles dans la parité entre l'euro et le dollar, je n'ai pas changé de discours.”

Peter Boone and Simon Johnson writing at The Baseline Scenario website translated this in part to say:   “I see only good news in parity between euro and the dollar.”   They characterize this statement as “a quote for the ages” and go on to say:  “Be careful what you wish for – such statements will drive the Germans crazy as they see further evidence that inflation lovers are clearly winning influence and might just gain control at the European Central Bank (ECB).”  Apparently realizing that the translation they used might have not accurately reflected what Fillon said, they later updated their post with one of the sentences quoted in French.  They then further commented:  “Saying this on a day when the euro is collapsing, [Fillon] is clearly condoning further collapse.”

Boone and Johnson may be right in their conclusion if not in their translation.  This incident reminds me, though, how sensitive markets sometime are to any change in wording when it comes to exchange rates.  For example, it seems to be a rule that Secretaries of the Treasury periodically say that they are in favor of  “a strong dollar policy," whatever that might mean, especially when the U.S. periodically complains that China should let its currency appreciate.