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Looking for a simple, but well-informed, answer as to why the dollar keeps dropping against the Euro

Looking for a simple, but well-informed, answer as to why the dollar keeps dropping against the Euro

Dec 22nd, 2003, 05:59 AM
  #1  
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Looking for a simple, but well-informed, answer as to why the dollar keeps dropping against the Euro

Do you have some financial savvy and expertise? I know no one can predict the future, but is there any hope the dollar will stabilize and climb again? Why do the experts think the dollar is so weak, and continues to get weaker? The exchange rate is now at the point where we are thinking our traveling will have to be in the US rather than Europe this year. This is disappointing because we really like Europe and have had a number of enjoyable trips there in recent years.
julies is offline  
Dec 22nd, 2003, 06:06 AM
  #2  
 
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I cannot wait to see who answers this post because I want to know who could possibly have an answer to a question like this.
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Dec 22nd, 2003, 06:15 AM
  #3  
 
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I don't think I know either, but an article by Brad Delong, an economist, descibes the weak dollar policy of the current secretary of the Treasury, Mr. Snow.
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Dec 22nd, 2003, 06:45 AM
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As Will Rogers was reported to have said, all I know is what I read in the papers. And as Harry Truman said, if you laid all the economists end to end they could not reach a decision.

So I don't think I know either, but an article by Brad Delong, an economist, descibes the weak dollar policy of the current secretary of the Treasury, Mr. Snow. You can find it here: http://www.j-bradford-delong.net/mov...es/002294.html

His arguments are that the current Federal economic policy is designed to make the dollar market based. The US Government is no longer trying to take some of the risk out of foreign investments in the US, or in other words, the dollar is receiving no artificial support from the Treasury to keep the price up or stable.

Added to this policy by the government, interests rates are down because of the recession, and US investments from overseas are riskier. The result: falling demand for the dollar makes weaker dollar exchange rates. (Hence we pay more for other nations' currencies.)

Also, the US trade balance is billions in the red. Result, dollars are all over international markets, and they are not very much sought after on the world market. When that happens, the price of a dollar drops. Or, taking the flip side, foreign currencies cost us more.
So right now everything pertinent is against us.

Now if these comments by economist Delong make sense, we may have he semblance of an answer. If they don;t then Mr. Delong is not a candidate for providing an answer.

But recall, it is the words of Mr Delong and not me. I did not write it.

My own surmise, after many economic courses each of which told me something different, is that the issue is multifaceted to the extent that no one so-called expert knows all of the answers. But one thing is for sure, regardless of your political, economic, religious, philosophical, moral, legal, or other beliefs, the dollar is down more than 45% against the euro since Febuary of 2002. (was 85.5 cents for 1 euro; now it is 1.24 for one euro.(.855-1.24)/.855 = -.4503 or a drop of 45.03%)The dollar did not get that way all by itself. Something pushed on it.
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Dec 22nd, 2003, 07:03 AM
  #5  
car
 
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The euro was originally launched at a exchange rate of 1.14 with the US dollar, and it dropped for its first two years of existance to a low of 0.88
euros to a dollar.Golden times for US travelers. The reason behind the drop was caused by a poor demand of euros from the world markets. If there are more sellers of euros than buyers then the value drops towards the currency with more demand.
The more the euro was stablished in the world economy and the more was percived as a "sure value" made the exchange rate move towards the nowadays one.
If we move now into value for the money,
I do not think that goods and services in the Us are worth half the value of what they are worth in europe, that will mean euros at 1.50 ,and the Us goods sold cheaply internationaly at the same time they should not be worth in europe half the value of their US value, Us dollars at 0.75 euros.
So the today 1.22 makes Us dollars priced goods cheap and euro priced good s expensive.
So holding to buy euros should be the answer. And something around 1.05/1.08 a good value.
Note one:
I am normaly wrong in my predictions.
Note two:
Maybe a reduction of vacation time?
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Dec 22nd, 2003, 07:11 AM
  #6  
Degas
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Stick around awhile and you will see the dollar go back up. Just when everybody jumps on the "the dollar is worthless" bandwagon, it will turn and head back up. My countryboy guess is by
the fall of 2004.

If you really want to go to Europe, then by all means go. Stay a day or two less, look hard to snag a great airfare/hotel sale, take a few less taxi's, do a few more picinics instead of big restaurant dinners, skip a few guided tours, don't buy new clothes for the trip, ..... .

It often depends on just how bad you want it.
 
Dec 22nd, 2003, 07:39 AM
  #7  
 
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All I know is the pocket change I brought back from our last trip is doing better than my IRA.
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Dec 22nd, 2003, 07:47 AM
  #8  
Degas
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Clevelandbrown, your IRA must not have much in the NASDQ or Tech stocks - those bad boys have been smoking over the past year. DOW has also done well.

2004 looks to also be a good year for the markets: consumer confidence getting stronger, low interest rates, low inflation, economic growth increasing, productivity high, unemployment claims starting down, and business starting to invest again.

Barring a major terror attack, the dollar should stablize at some point and head back up. Lord, am I ever out on an economic limb here!
 
Dec 22nd, 2003, 07:53 AM
  #9  
JonJon
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I think you've at least partially "answered" your own question in the "header" of your post: "...a simple, but well-informed..." my guess is that you might get a well-informed answer FROM AN ECONOMIST and unless there's one here masquerading as someone who also wants to know about which "arr." to stay in in Paris, then I think casionroyale's answer is the best one.

Of note, I suspect to all the "regulars" here would be the fact that you have stated that if the exchange rate worsens you will start seriously thinking of abandoning Europe as a travel destination for the time being. I think this statement is VERY interesting and important and I have wondered how long it would be before we start seeing this sort of sentiment begin. We've seen some posts about the exchange rate but now this....

I think if this keeps up and airline bookings drop off it will launch fare sales from the airlines and, perhaps, hotel deals in Europe. However, when i was in Amsterdam in November where I stayed in an upscale guest house, iw as told by the owners that originally their business dropped off because so many of their patrons were from the US and the place as booked MONTHS ahead. But then, Europeans who apparently don't plan as far out, were finally able to get into the place and the business is better than ever.
 
Dec 22nd, 2003, 08:01 AM
  #10  
 
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It's all a matter of supplu and demand.

When more are buying than selling the price goes up. When more are selling than buying the price goes down.

When you import more than you export you must pay people in their currency. Thus you sell local currency and buy foreign currency.

It's a sign that we are buying more than selling.

Of course, this all ignores the currency speculators who have their own agenda.
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Dec 22nd, 2003, 10:27 AM
  #11  
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Thanks for the thoughtful answers. Actually until just recently we were in the so what, we'll go ahead and go anyway category. My husband's thoughts had been that we had already benefitted from a weak dollar because we were able to refinance our house at an extremely good rate. So, you win some and you lose some.

But, now that the dollar has dropped so far we are starting to reconsider. One more thought for those who are following this thread. Another idea is to do what we did in August: we split our vacation between 1/3 Germany and 2/3 Poland as eastern Europe, while getting more expensive daily, is still a bargain compared to the US.
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Dec 22nd, 2003, 10:43 AM
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So how soon will it be before we see Eurotourists in the U.S. asking "How much is that in real money?"
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Dec 22nd, 2003, 10:54 AM
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I can't begin to answer the basic question, but I can tell you this. Next summer I'll be going to Europe for two months plus. Then I'll be heading out west to Oregon and California for about two months. After making all my reservations and most of the travel plans, my budget for the two of us is about 30% higher for the time in the US than it is for the time in Europe. I may not get as many euro for my dollars, but I'm thrilled with my accomodations in Europe, mainly for under $125 (figured at 100 euro) a night. Most of my hotels in Oregon and California are closer to the $200 night range. And I know that I can not dine and "wine" as wonderfully in Los Angeles as I do in Rome or Paris at the more budget places.
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Dec 22nd, 2003, 11:05 AM
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If the inflation rate is higher than the interest rate the value of money will decrease. Unless money is working it is valueless. A national value of money is usually constant. The international value of a currency changes constantly. Tourists can affect the value of a foreign currency by demanding it! If everyone stays home (doesn't visit Europe/Euro countries) the Euro will decrease in cost. Present and future forecasts have to take in the results of the population explosion. The USA is adding 3 million residents a year...
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Dec 22nd, 2003, 11:32 AM
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GSteed, I see you're back. People are wondering why you posted the spectators/participants message and then never responded to any of the thoughtful replies you received...
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Dec 22nd, 2003, 02:24 PM
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Here's another article, by Robert Samuelson in Newsweek, for those interested in the subject:

http://www.msnbc.msn.com/id/3769770/

I would take slight issue with Dixon's math: I'd say a decline from 1/0.855 to 1/1.24 is a 31% drop. But to get back up to the 1/0.85 level would require a 45% increase.
jahoulih is online now  
Dec 22nd, 2003, 03:14 PM
  #17  
 
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The simple answer: people are selling dollars in excess of the demand.
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Dec 22nd, 2003, 05:32 PM
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If travelling under a strong dollar is really important to you, I suggest Asia!
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Dec 22nd, 2003, 07:08 PM
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Life is too short to abandon your travel plans because of currency fluctuations. If you must, cut back on some of your "at home" luxuries - or, if absolutely necessary, shave a few days, cut back on fancy hotels, pick a cheaper itinerary, but go. Go, else you will come to a time when you are unable to go and no amount of favorable exchange rate can make it otherwise.
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Dec 22nd, 2003, 07:32 PM
  #20  
 
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Balance of payments, gross domestic debt, and gross domestic product. The US dollar has been over valued for some time and is now falling a little.

There are some countries where your dollar will still go a long way-Eastern Bloc countries and Turkey. Great places to visit.
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