Euro Reaches All-Time High in Trading

Yahoo News ^ | 12/16/03 | MELISSA EDDY,

[SUSSA]

FRANKFURT, Germany - Europe's common currency rode to a new all-time high against the U.S. dollar Tuesday, amid persisting worries about the overall health of the U.S. economy.

The 12-nation currency rose early in the day at $1.2361 — beating a new record of $1.2355 set in thin afternoon trading in Asia. It later dropped to $1.2339 in afternoon trading here.

Over the past several months, the euro's surge has pushed it more than 17 percent higher against the U.S. currency, amid stubborn concerns over the U.S. budget and trade deficits, which economists say can undermine a country's currency in the long term.

Currency analyst Jane Foley with Barclay's Capital in London said dollar-negative sentiment is driving the euro up, "not any particularly euro factors."

Just how little the dollar rallied on news of Saturday's capture of former Iraqi leader Saddam Hussein (news - web sites) "just goes to show that it's very, very difficult for the dollar to find anything that will support it," Foley said.

Concerns that the U.S. trade deficit will continue to grow as the American economy brightens will keep the dollar high well into next year, Foley predicted.

"For now it seems very unlikely that we are going to see any near-term reversal," she said.

But Dorothea Huttanus, an analyst at Dresdner Bank in Frankfurt, sees the euro's climb as a self-perpetuating upward spiral sustained by thin year-end trading that she predicts will not last into 2004.

"The dollar is actually a much more solid currency than the euro could ever be," Huttanus said.

She noted that despite the U.S. deficit, enough positive signals are coming out of the United States to drive the euro back down next year.

Earlier this month, the European Central Bank dismissed concern about the surging euro, which it oversees, and president Jean-Claude Trichet refused to be drawn on whether there was a threshold that the bank would consider too high.

Some analysts have said the bank might intervene if the euro continues a rapid climb to slow the currency's rise to a more orderly pace.

[Prodigal Son]

Can't figure out why everybody acts like the dollar is so incredibly weak against the Euro. The Euro was launched at around 1.18. It's at 1.23 now. Jeez, it dipped down below one dollar a while back and it was no big deal supposedly. It's five cents more than its launch and the sky is falling? Hmmmm....

Chart below shows the Euro's history over the long term. You can see it was basically at the same level it is now when it was launched in the late 1990s. Then look at that dip. The Euro hasn't been surging so much as it has been getting back to where it started when it was officially launched.

Certainly no cause for alarm or it should've been very alarming when at the Euro's official launch that the dollar was so weak against it. I don't recall hearing too much about uproar about it back then...

[Dallas59]

Sounds like a football game...Yards rushed..that sort of thing.

[SUSSA]

I'm not alarmed, but this is worth watching

[Prodigal Son]

I'm not saying you're alarmed. You posted the article, your name is on the number one post so you will receive many replies that aren't directed at you personally. I just get tickled to hear everyone freak out over the dollar versus euro but they weren't freaking out when the euro launched at this same relative level. Currency is going to go up and down over time- there isn't too much you can do about it. When the euro hit historic lows, people should have bought a pile of it and should be buying their dollars back right now and making a nice profit.

[libtoken]

It is of some concern to those American military members stationed in Europe. Fortunately, there are commissaries and post exchanges...

[BigDoom]

I see it as another sign for a return to normal life. The old Deutschmark was as strong or even stronger before, same to the Swiss franc. No cause for alarm or even close watch, it helps our economy like a second huge tax-cut...

[KeyWest]

Thanks for the graph. Explains much. Buffet and Suros are also players and they are up to no good.

[Cap Huff]

Well, my income is all in dollars, but I live on the economy in Europe so I'm getting beat up badly. Its cyclical (I hope) and in any event there's nothing I can do to change it. Even as a free market advocate I realize that markets are sometimes irrational. In this case I think it is simply a matter of "expectations." Its reasonable to assume that the trade deficit is a significant factor, but I think some economists over emphasize this.

[Prodigal Son]

I see it as another sign for a return to normal life.

Yep. I live in Europe and although my daily currency is Pounds Sterling I am experiencing a similar effect- the pound is up against the dollar. I am using this as an opportunity to pay off debts owed in US dollars. I wind up paying less than the amount I owed (relatively figured against what I would have originally owed in Pounds). Every up and down turn has its advantages and disadvantages. The trick is capitalizing on them.

I think a lot of emotional baggage is attached to the terms we use to describe currency trading. It's somewhat irrational but it's human too and hence unavoidable. People don't want to be weak. They don't want to be associated with something that is weak. People hear "Weak Dollar" or "Strong Dollar" and this instills a certain amount of emotional weighting even if it can be demonstrated that it has positive or negative aspects either way.

There's another thread somewhere about the Brits seeing this as a big boon time to come to New York and do their Christmas shopping, which is a perfect encapsulated illustration of the positive side of the weak dollar. Right now is not a good time for Americans to buy foreign things but it is a great time for foreigners to buy American. So much so that the British, in this example, see it as very much worth it to fly all the way to NY with empty suitcases (or buy luggage in NY) and stay in a hotel for a week merely to buy presents for their friends and family. I saw a breakdown recently on how much you could save as a Brit and depending upon how much you bought, the savings would actually cover the cost of the trip quite nicely with still substantial savings on gifts you would have purchased anyway.

[Free_at_last_-2001]

Buffet and Suros are also players and they are up to no good. - this is very true!

[demlosers]

Its reasonable to assume that the trade deficit is a significant factor, but I think some economists over emphasize this.

Right. Mostly, I suspect, because of a political bent. The biggest reason is the U.S. interest rates is at a 45 year low.

When the FED does increase the rate, you'll watch the dollar value go up and up.

[Brilliant]

They attribute the weak dollar/strong euro to "persisting worries about the health of the US economy." However, any first year economics student will tell you that the reason the dollar goes down vis a vis the euro is that the US is running a trade deficit, and the reason the US is running a trade deficit is that the US economy is strong relative to the European economy--not weak. When the US economy is strong, consumers spend more money and buy more imported goods, while the weaker European economy does not enable European consumers to reciprocate.

[thoughtomator]

Euros will cheer this as good news, when it's anything but. The wealthy will get to take cheaper vacations while the overvalued currency chokes exports to death.

[CaptainK]

The same thing happened in the late 70's early 80's. I was on a vacation in London and the exchange rate was painful. People tend to forget the cycles that we have already gone through. And will go through again.

[waterstraat]

If you add the federal budget deficit and the balance of trade deficit, you come up with a total annual deficit of a trillion dollars a year. Combine that with the United States in process of moving all of its high tech and manufactuing capabilities to asia, and you end up with a country which produces nothing and is spending like a drunken sailor.

The dollar will continue to fall until we get a balance of trade surplus, until we get a federal budget surplus, and until all the jobs and factories come back from asia.

Until then, until that happens, buy gold.

[bert]

Which is to say that there was a period when the $$$$ was abnormally high.

Near parity with the Euro does not hurt America as much as the rate of the change affects the Europeans.

[waterstraat]

the US economy is strong relative to the European economy--not weak. When the US economy is strong, consumers spend more money and buy more imported goods,

The US economy is NOT!!! strong.

The fact that americans are buying lots of chinese goods means that the economies of red china, india, korea, etc are strong.

It is India and red china where all the new factories, new offices, and all the jobs are. The Asian economy is booming, not the United STates. We may be spending a lot, but that does not make us "strong". Spending and producing are two different things.

A country, or even a family, that produces nothing, has no job, but spends a lot, and increases its debt by a trillion dollars each year, is not healthy nor "strong" financially.

[waterstraat]

italics off italics off

[katana]

I was living in Europe back in the early 90's and the situation then was the same. You have my sympathy and hope that you can work out some currency exchange escalators with your employer. But the bottom line is that, like most things, there is a good side (as well as bad) to a weaker dollar. It makes inward investment from Europe to the US more attractive, and US products more competitive in export and domestic markets.

All that aside, I know first hand these sorts of things are small comfort when you're trying to make ends meet, but if all else fails and it's possible, maybe you can just come home.