xyz123

Several years ago, we had a poster on this boad who week after week, I won't mention her name because posts on this board should never get personal, predicted the crash of the US dollar against the euro. I was prepaying some hotel reservations today and was shocked when I checked oe.com that the euro has slipped to $1.08. So I thought we might start a thread, all in good fun of course,as to just when the euro and USD will be trading at par. I wonder if you can make a wager in Vegas on this...I'll take May 1.
In all seriousness, I decided to book the hotel room in USD (the hotel is in euroland) since it is fully refundable and if the euro falls further I can cancel and re-book and the refund would be in USD...make a little money on the transaction.

Incidentally, the GBP is down to around $1.50...talk of the collapse of the USD seems a bit premature, eh.

hetismij2

No it isn't collapsing (yet), just going back to where it should be.

Alec

It's to do with the divergent paths the respective Central Banks are taking. US FRB is set to tighten monetary policy (raising interest rates) sometime this year, while ECB has just announced the start of quantitative easing (pumping money into economy to kick-start it) over 18 months. So the near and medium term outlook is for euro to continue to decline over other major currencies. Sterling is remaining firm over euro but is easing against dollar, mainly because of the pace of fiscal tightening in UK (interest rate rise to start only in 2016 and more gradual than US) and worries over the fate of UK government with general election due on May 7th.

Ackislander

Someone I know well is holding a pile of euros that he bought soon after it was introduced at below par, something like $.85. He doesn't need to sell them, and they are a nice hedge against travel costs should the dollar decline.

We were in England in the early 1980's when the pound and the dollar were virtually at par. We thought about buying a house in the southeast for $/£ 20,000 (yes, 20,000) but didn't. Too much trouble to deal with from abroad. Woulda, coulda, shoulda.

IMDonehere

Yes and the person who predicted the demise of the Euro, studied economics.

The main reason why the Euro is so high against the dollar, is the ECB does not print extra money to pay obligations.

tom_mn

Wasn't the euro introduced at par with the US dollar? So shouldn't that be the normal situation?

All sound markets are mostly psychology: they go up and down due to popular ideas. 6 years ago many were entranced with Angela Merkel's austerity and tight money policies, so up goes the euro. Now those ideas seem foolish, so down goes the euro.

Good year to be converting dollars to euros, though. Also, nice to see an old genius, Keynes, be proven right.

xyz123

Actually, when the euro was introduced it was pegged at $1.16. After it was officially the currency in euroland, it started dropping and hit a low of $0.85 then started a right with the decline of the USD it eventually went as high as $1.52. Call this whatever you want. It has dropped about 5% during the last month. Just another indication of the second law of thermodynamics...what goes up must come down.

bvlenci

No, the euro wasn't introduced at par with the US dollar. It's initial value was established I think about three years before the currency was issued, and it was below the dollar at that point. Its value was based on the value of a fictitious currency called the ECU, which was pegged to several other currencies, but I think mainly the British pound. In 2002, when the currency was actually issued it was worth about $1.20, so it's below that now.

I can guarantee that if I decide to transfer some of my dollar savings to euros, the value of the euro will plummet tomorrow. So maybe Mario Draghi would like to have a word with me about the quantitative easing.

Southam

An amateur economist's view is that petroleum is pushing its thumb on the scales that balance international exchange. The sudden increase in fracking oil/gas deposits in the United States has helped increase the value of the US dollar in international commerce (Canada's dollar has gone into a stunning plunge for the same reason.)
Tom's memory is firm. According to Wikipedia, the Euro came into formal existence at the start of 1999 but minted currency didn't circulate until three years later. Trading could start without currency in hand, and Wikipedia says the dollar went up to $1.19 on the first day of trading, soon forcing Euro nations to support the euro back to near-par.
Keynes had a lot to do with the thinking behind a common currency, via the agreement that ended the gold standard after the Second World War. Or so this amateur thinks. His work still arouses controversy, tinged with political ideology, and I would enjoy Tom's description of how and why he was great. After all, travellers around here constantly encounter some of his legacy, know it or not.

Southam

Sorry, bvlenci, we posted at the same time and I did not intend to contradict you. Wikipedia's version and yours are essentially the same. I thought my first euros were a good deal until I got to France and realized how the French merchants had used the currency switch from the franc to round their prices upwards, way up. The true value of money is not the exchange rate but what the respective currencies can buy in a shop or bistro. The Economist magazine from time to time compares various costs-of-living by the price of a Big Mac at the local McDonalds.

kleeblatt

When the Euro drops against the Franc, it causes a ripple that reaches throughout Switzerland. Many Swiss companies are hit hard because of the high Franc to the low Euro. Our products become more expensive which subsequently means lower profits for manufacturers and tourism.

I, for one, would like to see the Euro rise a bit because it will make Switzerland more competitive again.

Michael

<i>Actually, when the euro was introduced it was pegged at $1.16. </i>

According to http://www.oanda.com/lang/en/currency/historical-rates/, the euro did not hit par until November 2002.

bilboburgler

I was asked by a French man, years ago, why I, as a Brit, I thought the Euro was a bad idea. I suggested that harnessing a steam engine to a donkey was also a bad idea and that Greece/Italy would be hurt by Germany.

As it happens (if only I was always this good) corrupt Greece has been damaged terribly and Germany, by having a falsly cheap currency has benefited to the point where its infrastructure is starting to show the same problems that USA's is)

I hear that today Herr Juncker has decided we need an European Army, based on the performance of the European Bank, the Russians would be in Calais long before the first chitty got to the ammunition supply train. There are times when I just give up with the EU who show no focus or imagination.

Still the most significant issue at the moment is the price of Oil world wide and the fact that the USA is a net producer. If you look at the last 6 months E/$ graph (as I do daily) it is a straight line down, where it stops no one knows

By the way I saw a 8 bedroom on the Mosel river for around E400k yesterday. This has got to be a snip for many Americans.

kerouac

<<realized how the French merchants had used the currency switch from the franc to round their prices upwards, way up>>

That is pure fiction, and the inflation statistics over the years prove it. However, there were a few "shocking" increases noticed particularly by tourists like when the street vendors started asking 1 euro for a can of Coke instead of the previous 3 francs (0.46€). I did not notice any price gouging at all in supermarkets or normal shops, but I'm sure that the majority of people will say that prices skyrocketed anyway. They are still saying that even in the current period of deflation, so I think they are living in an alternate universe.

tom_mn

I can't put it better than Krugman (about public debt)

http://www.nytimes.com/2015/02/09/op...ands-debt.html

Keynes saw that the correct role of government in hard times is counter-intuitive: austerity is bad, borrowing is good. Governments are not households, and the same rules do not apply, i.e. cutting back in hard times is good for a household, but bad for a government. That's the genius.

flanneruk

" the value of a fictitious currency called the ECU, which was pegged to several other currencies, but I think mainly the British pound."

Quite the opposite.

The pound had a weighting of just 12-13% in the ECU's value: higher (13.3%) at its 1979 launch, lower (12.45%) by the time the ECU was phased out for the Euro in 1999.

The mark fluctuated between 32% and 33% of the weighting: the French franc around 20%. Even the guilder (between 10 and 10.5%) had almost the same weight as the pound. The lira and the Belgian franc (each around 8%) weren't much lower either.