Why is the Euro so high vs. the US Dollar?
 

OK - I'm sure this question has been asked before. But I really don't understand how the Euro could be worth so much more than the US dollar. Europe's not in such great economic shape either.

Also - Just came back from Italy and my bank charged us $1.50 US to 1 Euro for each ATM withdrawal. This is without the bank fees, and even when we saw that the exchange rate was 1.46. Anyone know why it was so high? (HSBC is our bank.)

All you economic whizzes - enlighten me.

The EASY answer is "beacuse they KNOW you are about to come over there."

I suspect one more reasonable answer to the Euro vs. Dollar issue (yes, all you would-be economists lurking in the woodwork....THIS is your chance to show off with your answers so please get out of your Civic and off your cellphone and chime right in) may be the fact that other countries, mainly China, have eagerly bought off a significant amount of the US debt and there is this looming suspicion that China may decide to DUMP a whole lot of Dollars onto the market....which would make the recent Wall Street "Big Ticket Social Program" look like small potatoes...

I remember when the two currencies were at par and it was a wonderful time to be in Europe....it is still a wonderful time but simply costs you more..are you worth it????

It's not just the dollar that's getting humped by the Euro. The pound is getting it in the pods too. And for the same reasons. London and New York are where the banks live and it's there that they have been bailed out - making both countries horribly in debt. Plus the US economy is a bit of a basket case right now (not that we're a whole lot better).

At a practical level it makes Paris unaffordable as it is already more expensive than London and near parity in currencies makes things much much worse. But the USA looks like a real bargain.

The difference is that in Britain we nationalised the banks, so at some time in the future we will be able to sell our shares on the open market and may even turn a profit.

These things go in cycles. It was barely a decade ago that every magazine and newspaper was talking about the death of the euro. Now, it is the death of the dollar.

Of course, we are supposed to believe that somebody has a crystal ball, yet we still see 180 degree changes within a decade. And this has been despite little change in the fundamental failings and strengths of both the European and American economies. I mean, it isn't like the US deficit is anything new, and the European economies still have huge off-book liabilities related to trying to finance welfare states with shrinking working-age populations.

Given the poor track record of even economists to predict these things, I would take any answer with a grain of salt.

The way I understand it, those who are buying our bonds hedge their portfolios in other Reserve Currencies via Euro/Dollar and Yen/Dollar spreads. Since we have been adding to our National Debt at an accelerated amount, the change in rate has led to the drop.
Add unto that all the speculators that are betting we will be forced to monetize our enormous deficits, and you have a very dismal dollar.

<i>London and New York are where the banks live and it's there that they have been bailed out - making both countries horribly in debt.</i>

I think you have been listening to the self-righteous nabobs from the continent. They want to believe that they have no horse in this race and wash their hands of it, which is hooey. Cheap credit helped pay for all that German heavy equipment and all those French airplanes. Now, of course, they want to turn around and say "I told you so" and pretend that they don't need to be part of the solution.

At the end of the day, it is nothing more than the typical Franco-German "leadership", which is to keep your mouth shut until things go wrong and then start pointing fingers at everyone else and expect the Americans and the Brits to bail them out. Either the US and UK banking sectors recover, in which case the US and the UK start looking better, or they don't and France and Germany (and China too) go down with them. The French and Germans just don't want to put any money into their own recovery.

I don't know all the economic reasons so won't weight in on that one, but I know the US dollar is bad against lots, if not most, foreign currencies, so it isn't just a euro issue. I mean worse than usual.

As for your bank -- some banks add-on a foreign transaction fee to ATM use now when they didn't used to, that's probably it. My bank started doing that a couple years ago and they never used to, they now charge 3 pct for ATM withdrawals, it used to be nothing. If your rates are correct, your bank is obviously doing that also. Why? To make money.

"Who" decides on the rate? Is it a person; a group of shady men who meet in a cave?

"The Market" decides. Banks buy and sell money in the millions, the price fluctuates with a million and one variables but it comes down to what banks are willing to sell for and what other banks are willing to pay. The "exchange rate" you see in the paper or on XE.com is just a snapshot average of what the banks are paying that day.

Christina - As for my ATM rates in Italy - wouldn't that bank fee be on my statement? The fee from the foreign banks we took our money out of via ATM was listed on our bank statement. Not HSBC's fee though. Only the amount they charged us which was approx. $1.50 US to 1 Euro.

The French and German economies already started growing again in the second quarter of 2009 and will also show growth for the third quarter. As the two largest economies of the euro zone, I would imagine that it is what gives strength to the euro compared to countries that are still in recession.

Kenav,
You hit on a valid point. The currency markets are operating on non traditional market forces. Instead of the US having to offer a higher interest rates to sell our bonds, we have manipulated various rates that allow us to sell bonds at very low interest rates. Then..We have allowed a mechanism for those bond buyers to receive extra return on there bonds by being able to effectively short the dollar with no risk.

"Who" decides on the rate? Is it a person; a group of shady men who meet in a cave?

The foreign exchange market decides. Euros/US$ trade similar to stocks.

Low interest rates in the US (relative to Euro rates) make the $ less attractive as an investment. Less attractive = lower dollar prices...just like a car.

The latter - a group of shady men who meet in a cave. The same cave used for all those vast right wing or left wing conspiracy meetings. Pretty posh digs I hear.

IIRC the CIA built the cave to hide the alien UFOs back in the 50's, and for a while it was used by the US Gov't to develop the aids virus & ebola.

The group looks at a list of US travelers who are headed to Europe in the next month or so and use a complex profiling theory to single out who they want to stick it to. That's the reason for the new TSA exact ticket name rules.

Also who says the Euro is "high?"

The fact that one Euro buys more than one USD doesn't necessarily mean that the Eurozone economies are doing better than the US. The pound has always been worth more than the USD even when the country was on it's knees in the '70s or in the grip of massive recession in the '90s.

The idea that one Euro "should" equal one USD is odd really, before the Euro change over $1 would buy you just over 1300 Italian Lira. Did that mean that the USA had an economy 1300 times "stronger" than Italy? Or that thing were 1300 time more expensive in Italy?

Look at the positive side if you can - if you found buying euro expensive then the corollary is also true - for Euro holders buying US$ is very cheap; i.e buying goods priced in US$ is more affordable than previously.

Your exporters should be having a better time of it selling to the Eurozone.

You do still manufacture and export stuff don't you? It's not <i>all</i> been outsourced to China has it?

Dr D.
:)

Pete_R - Yes, I agree with you about not having one currency "equal" to another. It' just that the Euro started its life as equal to U.S. and the dollar has sank in comparison to the Euro since.

Dr_DoGood - Yes - we still manufacture stuff. Like our pizza.

Went to Italy (Lake Garda, Sirmione and Venice) and boy their pizza doesn't hold a candle to NY's. Really. Can't make a tasty pizza worth a dime (but will cost about $12-18 American dollars for individual one)! The Italian pizza here has spoiled this New Yorker forever. Tried may different pizzas in the areas we went to in italy. Tasteless. We were shocked.

OK - so can we export this and make some moola?

The simplest answer is to look at the debt and deficit. The world is looking at these huge numbers and deciding that there is less currency risk in holding instruments denominated in other currencies, with the euro being one of the biggest ones. China, for example, is one of the largest holders of US Treasuries. They haved shifted some of their holdings to other currencies, like the euro. If they decide to move more, further pressures on the dollar. One major way to attract buyers to your bonds and T-bills is to make it worth their while...by paying more interest. Raising interest rates can also bump up the value of the currency. But...higher interest rates can have a negative effect on the economy (for example exports more expensive, mortgage rates up). Its a fine balance.

Complicated, but it's the market's way of saying that the economics today are crap. The deficit is huge, the debt is going up, and there is no politically viable solution in sight. Raise taxes, cut programs, grow out of it..maybe.

And...be nice to China, they can change your mortgage payments.

It's all over now anyway. Just sit and wait for the bang.

<<It' just that the Euro started its life as equal to U.S. and the dollar has sank in comparison to the Euro since.>>

Actually, the very first rate of the euro was $1.18.

Kenav, way back about 10 messages ago, you mentioned that the FOREIGN bank's fee is listed on your statement.

To my understanding, the Foreign banks that own the ATMs do NOT charge a fee for their use... at least that is the case in Greece, others may chime in with difference from other European countries. Here are the fees as I have experienced them in 8 trips:

Interbank Currency Exchange Fee -- this is the fee that Visa/Mastercard levy (their involvemnt makes this all possible) for changing dollars into Euro/Swiss francs/ whatever. This is 1% I believe. Most banks pass this on ... the only one I hear about that "eats" this fee is the online bank, Capital One.

Your own bank's transaction Fee -- this used to average about $3 per transaction, some banks charge $5.

Your banks "greed" fee -- Many banks now ALSO charge a percentage (!!!). When Wachovia was acquired by Wells Fargo last year, it began charging 3% in addition to $3. This means that for getting $300 worth of Euros, my bank would charge $3 + $9 = $12. Larceny!

As a result, I now have a TD (formerly Commerce Bank) account I use just for my once-a-year trip to Greece. It charges no "greed" fee nor ANY transaction fee abroad for up to 10 transactions per month... and as a frugal traveler, I never withdraw that many times. I also use as back-up my Credit Union account, with similar provisions.

Of course I could even avoid the currency-exchange (Visa/MC) fee by getting a Capital One account ... and since I withdraw about $2500 for a month-long trip, this would save me about $25. I'm not sure it's worth it, since I favor "bricks and mortar" banks. But that's just me.

--------------

And as regards the original topic, I'm no economist, but the obvious reason for the sinking dollar is that we are so much an importing nation rather than an exporting nation. It is a hard blow to our pride and self-image that we now "make" so little that the world wants ... but that is the fall-out from globalization, as long as we have such a capitalist economy. Corporations will manufacture wherever they can pay the least, in order to maximize profit. Thus we have fewer and fewer industries making things, and paying taxes here. And both people and institutions no longer wait and save up until they have the funds to pay for what they want .... and our debt, personal, governmental, and institutional... grows and grows.

A sad state of affairs, not participated in by me (a lifelong Quaker with very frugal habits, no debt, and few earthly goods), but my dollar sinks as much as those of the Big Spenders.

<i>Actually, the very first rate of the euro was $1.18.</i>

And then dropped to something like $0.80. Things go up, things go down.

travelerjan -

So maybe the fee on the ATM withdrawals are from our bank HSBC and not the bank whose ATM we used. OK.

My husband has a Capitol One card. What a pleasure not to see added fees when you get the statement with your purchases from Europe.

First time I used Euro when traveling it was around $.90 for one Euro.

The ASDA store in Enniskillen, Northern Ireland (population 13,600) was the sixth busiest in the Walmart group worldwide last Christmas. Enniskillen is in the U.K., and uses the pound sterling, but it is close to the border with Ireland, which uses the euro. As the pound has fallen against the euro, prices for the same goods are much lower in Enniskillen than just down the road, and there are no barriers to travel, or cultural differences. The goods sold are identical.

This crazy situation is because the comparative value of currencies is not determined by comparing the price of goods but by factors outside the control of ordinary people.

It is why Americans are sometimes horrified by the price of goods in Europe.

Further details of Enniskillen ASDA are at http://www.newsletter.co.uk/business...-in.4862550.jp

To address the question of foreign banks charging an ATM fee, I have never been charged a penny by any European bank in any country for making an ATM withdrawal or using a debit card to make a purchase.

<<And then dropped to something like $0.80.>>

It even went below $0.70. Then, even the speculators realized how absurd that was, and it started climbing.

The speculators have a certain amount of power, but they lose it when they exaggerate.

"Can't make a tasty pizza worth a dime (but will cost about $12-18"

Strange - I was buying excellent Pizza last week in Campania for between €3 and €4.

I thought you knew it was HSBC that was charging you that different exchange rate, your first post made it sound like you did.

My US bank also charges me 3% on foreign ATM cash withdrawals, and that isn't even for a debit card as I don't have one. They charge all ATM cash withdrawals a 3% foreign transaction fee. They use STAR network or something, I don't know if that's related to Visa or MC or not, but I don't have a debit card and have no Visa or MC logo on my ATM card. I just have a regional bank, also, it isn't HSBC or any national name like BofA or Chase. There is no foreign transaction fee broken out on my bank statements, either, so you wouldn't know what it is unless you calculate it as I do. All that is shown is the USD amount withdrawn, in fact, I have to match it up to the original ATM withdrawal slips to know how much it was in euro or whatever. There have been some lawsuits and now credit cards have to show you that fee broken out, I believe, but those laws don't apply to regular bank checking accounts, unfortunately, so they don't even have to show you what they are doing obviously.

Here's a quick answer. The US is simply letting the printing presses roll. Nothing to back up the dollars except promises. That's also why gold is so high.

These are of course simply my humble opinions. Every one is entitled to those!

Euro versus dollar? Simple. Econ 101. Supply and demand.

The feds are running the printing presses (figuratively speaking) so fast they are burning up. The Bush-Obama bank bail out has just begun.

No European bank has ever charged me for using an ATM. That is an American tradition, spearheaded by Bank of America.

I just returned from Rome two weeks ago. The dollar was 1.43 against one euro. But, even with the terrible exchange rate, prices were good compared to taking a holiday in NYC.

For example, in many nice restaurants a glass of wine was 5 euros. That would be about $7, which is very reasonable if you compare it to many restaurants in Philly or NYC where a glass of wine can cost $9-$11 on average.

A take-away sandwich was about 3 euros in Rome. That is $4.29, which, again, is reasonable if you compare it to what you would pay for a take-away sandwich at a place like the Cafe Europa chain in Manhattan.

Many Italian products were cheaper in Rome than if you bought them in the US. For example, a box of sandalwood soap from the esteemed Farmacia Santa Maria Novella was $12 cheaper if bought in Rome instead of at Lafco in Manhattan.

I saw Ferragamo shoes that were $120 cheaper at Ferragamo on Via Condotti compared to the same pair at Barney's on Madison Avenue.

So, just because the dollar is weak against the euro doesn't mean that prices are astronomical in all cities in Europe.

Now, London, the city of my birth, is another story. The prices there have always given me the shivers.

Thin

If heading to Europe you'll need euros (EUR), and will need to check the EUR/USD exchange rate at your bank. The market rate may be 1.3330, but an exchange might charge you 1.35 or more.

Banks and currency exchanges compensate themselves for this service. The bank gives you cash, whereas traders in the market do not deal in cash. In order to get cash, wire fees and processing or withdrawal fees would be applied to a forex account in case the investor needs the money physically. For most people looking for currency conversion, getting cash instantly and without fees, but paying a markup, is a worthwhile compromise.

Shop around for an exchange rate that is closer to the market exchange rate; it can save you money. Some banks have have ATM network alliances worldwide, offering customers a more favorable exchange rate when they withdraw funds from allied banks.
So keep this l'il thing in mind, and you will have the upper hand ;)

VERY VERY old thread revived for some reason.

Jayanth, welcome to Fodors.

Generally we don't awake old threads (in fact a thread that has been "dead" for more than a few months are left alone most of the time apart for those trying to advertise things who are triangled pretty fast) :-)

I like it when we revive threads like this. I am now excited about the chances the exchange rate will be sub 1.20 next summer, or those grand days when it was sub 1.00

bookmarking (sarcasm)

Why sarcasm?

I need to reread this as I think I'm still not sure of the answer.

I have read recently that the Euro being so high is one of the problems of the economy in the EU.

But Bilbo, if old threads were never awakened, we'd miss things like this:

http://www.fodors.com/community/fodo...f-all-time.cfm

Exchange rates do not necessarily reflect a general perception of the healthiness of the overall economy, prosperity, optimism or living standards of the general population.

They tend to reflect the financial markets' perception of whether or not the value of a currency, in relation to another, will go up or down, and also whether or not the rate of interest they could earn on holdings in one currency will be higher or lower than on another, over varying (but usually quite short) timeframes.