Where is the Euro going ?

[Tony125]

© The Washington Post ( USA )

Next summer is looking like the best time to take that European vacation you've been thinking about. That's because the euro has already fallen to a 12-year low of $1.06, and should keep falling for at least another year. In fact, it shouldn't be long until the dollar is worth more.

A brief history

The last time the dollar was worth more than the euro was all the way back in December 2002, just three years after the common European currency came into existence. But in the years after that, the Euro gained strength as the continent imported less and exported more. The euro soared to an all-time high of $1.59. It was enough that, in 2007, former Federal Reserve Chair Alan Greenspan wondered if the euro would replace the dollar as the world's reserve currency--in other words, the benchmark that everyone uses in case of emergency--and even supermodel Gisele Bundchen reportedly insisted on being paid in euros rather than dollars. That's quite a consensus. But it turns out that these reports of the dollar's death were greatly exaggerated. Since then, the euro has fallen 24 percent against the dollar in less than a year, and made everyone forget its grand ambitions.

What happened?

Robert Frost can help us here. Two monetary policies have diverged in, well, not a wood, and Europe has finally taken the path well traveled by. Specifically, to boost Europe's extraordinary weak economy, the European Central Bank is buying bonds with newly-printed money, aka quantitative easing, while the Federal Reserve is far enough along that it's getting ready to raise rates. That means interest rates are falling, sometimes into negative territory, in Europe, and, at least on the short end, rising in the U.S. Think about it like this. Would you rather buy a German 10-year bond that pays 0.25 percent or a U.S. 10-year bond that pays 2.1 percent? Investors, especially big European ones, are answering that by moving their money out of euros and into dollars. And voilà, the euro has fallen from $1.39 last year to $1.06 today.

The simpler way to think about this, though, is that the U.S. economy is in a lot better shape than Europe's. Unemployment is 5.5 percent here and falling fast, while it's 11.2 percent there and barely falling at all. Now a stronger economy should mean a stronger currency, because it needs higher interest rates to keep inflation in check—which should make it a more attractive place to put money. But, as Europe has found out, the opposite isn't true. Higher rates don't make your economy strong if it's actually weak. And even though that will push your currency up in the short run, it will make it fall even more in the longer one. That's the mistake the ECB made—twice, actually!—in 2011, when it raised rates to fight some fleeting oil inflation. The result was a double-dip recession that almost tore the common currency union apart, and has only just ended. To make up for that, the ECB has had to do more than it otherwise might have, cutting interest rates into negative territoryand buying €60 billion of bonds a month. The euro, in other words, is falling so much more today, because it didn't fall like it should have yesterday.

The U.S., meanwhile, has been printing money like it should have, at least most of the time. It started QE in 2008, expanded it in 2009, restarted it in 2010, and re-restarted it in 2012 with a promise to keep going until unemployment came down. It worked. Now all these starts and stops are why the dollar kept going up and down and up again these past few years, but now that it's over, it's only going up. Indeed, the Fed is done buying bonds, and, unlike almost every other central bank, is preparing to raise rates. That's pushed the dollar up against every currency, but especially the euro now that the ECB is printing them.

How low will the euro go?

That depends on how much, if at all, the Fed raises rates, and how long the ECB buys bonds. On the one hand, there's no sign of any inflation or bubbly behavior that would force the Fed to raise rates. But on the other, the Fed has been pretty clear that it wants to start normalizing policy in June because unemployment is already normal-ish. And on top of that, New York Fed President William Dudley has even said they might have to hike ratesin quick succession if long-term rates don't go up too—which seems pretty likely with Europe's low bond yields pushing ours down. The ECB has promised to keep buying bonds until at least September 2016, and even longer than that if inflation is still too low. Now Europe's inflation numbers are already picking up a little bit, but, as Paul Krugman points out, markets seem to believe it will be a good while longer before Europe's economy—and by extension, its monetary policy—is anywhere close to normal. Add it all up, and Deutsche Bank expects the euro to keep falling to $0.90 by the end of 2016 and $0.85 by the end of 2017.

So now you know when to buy those tickets

[beechguy]

Couldn't you have just posted this, in one of the other half dozen, whining and bitching threads already running?

[yankee99]

Interesting article thanks.

[zierf1]

It's going to .75 cents.

[Asiantravel]

It's going to .75 cents.

Or worse?

[Tony125]

Looks like the Ruble is tanking as well. Putkin has asked rich Russians to bring their money back to Russia.

http://www.msn.com/en-us/money/markets/putin-again-begs-oligarchs-to-bring-their-money-home/ar-BBiu1Q2

[puck2]

A little bit off topic, but concerns the €

After GREXIT Greece will have the new currency FIASCO

• 1 FIASCO = 100 DEBACLES
• 100 Debacles = 1 DISASTRE

Edited April 7, 2015 by puck2

[Naam]

Looks like the Ruble is tanking as well. Putkin has asked rich Russians to bring their money back to Russia.

http://www.msn.com/en-us/money/markets/putin-again-begs-oligarchs-to-bring-their-money-home/ar-BBiu1Q2

the Ruble has indeed been tanking but gained 19% vs. US-Dollar and 23% vs. €URo during the last 2 months.

[Sandman77]

Rubble will crash again

Soon Investors have no possibility to invest in Russia under the current sanctions I read in a report!

[Naam]

Rubble will crash again

Soon Investors have no possibility to invest in Russia under the current sanctions I read in a report!

what language was the report and did you short the Ruble in order to make a few millions and be free instead of selling 10Baht coins on ebay?

[Naam]

Rubble will crash again

Soon Investors have no possibility to invest in Russia under the current sanctions I read in a report!

for your information: the Ruble gained 9% vs. EUR in the two days since your "crash forecast"

what percentage did you make since day before yesterday?

[Sandman77]

The euro Gained 31 Procent versus euro not 9

[Sandman77]

Mean versus the rubbel not euro sorry typed wrong

[Naam]

Mean versus the rubbel not euro sorry typed wrong

what part of my posting

the Ruble gained 9% vs. EUR in the two days since your "crash forecast"

is it you don't understand and need a translation into Austrian German?

[IMA_FARANG]

When you attempt to tell future currency exchange rates you need to remember the 80% rule

The 80% rule is that 80% of everything you see, hear, or read is bull- - - t.

Or politely called "Male Cattle Fecal Matter".

If you remember the 80% rule .... it is a good start at understanding currency fluctuations.

If all the people telling you what a currency was going to do knew what they were talking about they would be billionaire traders now.

The fact that they are not yet should be you're first clue.

Edited April 12, 2015 by IMA_FARANG

[Anthony5]

Rubble will crash again

Soon Investors have no possibility to invest in Russia under the current sanctions I read in a report!

for your information: the Ruble gained 9% vs. EUR in the two days since your "crash forecast"

what percentage did you make since day before yesterday?

And look what it has done since your post.

[Naam]

Rubble will crash again

Soon Investors have no possibility to invest in Russia under the current sanctions I read in a report!

for your information: the Ruble gained 9% vs. EUR in the two days since your "crash forecast"

what percentage did you make since day before yesterday?

And look what it has done since your post.

Euro- Ruble.JPG

it hasn't done much. when i posted at 15.00 CET EUR/RUB was 56.109 closing at 56.717