I have to admit the euro has had an excellent run against the dollar from a standing start, and is now around 1 euro = 1.6 dollars or so, but I’m a bit confused about the reason as I don’t see the Europeans being (individually) all that much more competitive (in relative terms) compared to the US than in years past. It is simply that the efficiency of a single currency is driving this run up, or does it reflect real infrastructure improvements in European economies?
Is the Euro gaining value or is the dollar losing value? There are a lot of reasons for the US dollar to be losing value, and it’s been tanking against most currencies lately, including the Euro.
What **Rysto ** said. You’ll have to pick the currency. Over the last 12 months the Euro has slipped from 2.778 Brazilian Real to 2.643 Real. It’s not a huge drop, but the Euro certainly isn’t rising against all currencies. Here’s a site where you can compare historical exchange rates.
I was thinking of starting a thread, but I think my question fits here: Is the falling dollar primarily caused by the trade deficit?
For decades our consumer products have more and more been manufactured outside of the country. It seems (just an impression) that this has increased in the last 15 or 20 years. So we were using a strong dollar to buy everything from imported cars to kitty litter scoops. But at some point it seems that we upset the apple cart and we were not manufacturing enough items to support a strong dollar, so the dollar dropped. That is, we’re not contributing enough to our GDP. Not to mention that the people who worked in manufacturing jobs or else whose jobs were exported have less money to spend to support the economy.
A weak dollar is good for goods we export. They’re cheaper for foreign buyers, just as foreign goods were cheaper for us when the dollar was strong. If the weak dollar makes the products we still make attractive to foreign buyers, then more of these products should be sold, then the manufacturers will have to increase production, then they’ll have to hire more American workers, who will have money to spend and the dollar’s value will start going up.
In other words (I hate using that phrase, since a well-known politician uses it all the time and I hate it when he does) the dollar was over-valued for a long time and this is a ‘correction’. Eventually the dollar’s value will become stable, as Americans start buying more domestic goods and the balance of trade swings a little the other way.
I’ve never taken a class in Economics. Is my understanding at least somewhat accurate? Or am I completely off base?
The dollar has lost value because there is less global demand for it. Also perhaps because there is too much supply. I wonder how much money was “created” during the mortgage runup. We are beginning to see the problems of the leveraged game banks play when making loans. And to think the US Government considers a bank “well-capitalized” when only 6-10% of the outstanding loans are actually backed by deposits.