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Euro Goes From Strength To Strength

  • April 2nd, 2008
  • Posted by Emma Cillekens

euro.jpgThe Australian dollar will only buy you 0.58 Euro cents today (2.4.08)… and it seems amid the US sub prime mortgage crash and stressed world economy, the Euro is going from strength to strength.

Although the European stock market has had a bit of a beating (like most others in the world) the EU currency is faring well.

Today a Euro will buy $US1.56 (2.4.08), and although it’s great for European travelers, it could have some harsh repercussions for Europe’s export/import industry and in turn the economy.

President of the European Central Bank, Jean-Claude Trichet warned in March (4.3.08) that if the relentless assault on the American dollar continues to drive the Euro to record highs it could threaten to stifle growth in the Eurozone – the countries where it is prime currency.

This was when the Euro bought $US1.52 and today it’s well above that.

Henry Paulson, the US Treasury Secretary, reiterated ECB President’s view.

“In the present circumstances, I consider it very important what has been affirmed and reaffirmed by the US authorities, including the Secretary of the Treasury and the President … according to whom the strong-dollar policy is in the interests of the United States of America,” he said.

“A strong dollar is in our nation’s interest. The long-term [US economic] fundamentals are very solid and they’re going to be reflected in our currency.”

It seems these policy makers’ concerns have not been all that influential.Now almost a month later the $US is still losing value against the Euro, and fears heightened when the currency hit a record $US1.59 a few weeks ago.

Just days ago (28.3.08) the French President Nicolas Sarkozy said the Euro was “too strong” and as a result the Eurozone should expect less economic growth.

“The (US) dollar has never been weaker … and the Euro, which is based on too-low growth rates, is too strong.”

The European Commission (27.3.08) backed up the claim, saying the 15 countries with the Euro were beginning to “feel the pinch” of weak US growth and record commodity prices.

Consequently it estimated economic growth in 2008 would be 1.8 per cent; the slowest growth since 2005.

A relatively new currency, introduced in 2002, the Euro has been growing exponentially against the US dollar.

Although many are focusing on the negative economic impact of the high currency, it also has a positive effects.

The strong Euro means Europeans can enjoy purchasing goods outside the Eurozone at a lower cost than usual and also gain an advantage in exchange rates when traveling. Additionally Europe now has the ability to source raw materials (especially oil) at a lower rate.

Reference:

The Times. “Euro Strength rattles ECN cheif amid growth fears”. http://business.timesonline.co.uk/tol/business/economics/article3478705.ece (4.3.08)

International Herald Tribune. New blow to dollar amid U.S. growth fears http://www.iht.com/articles/2007/09/20/business/dollar.php (20.9.07)

“Euro too strong – Sarkozy” http://www.news.com.au/business/story/0,23636,23444947-14334,00.html (28.3.08)

Fairfax. “Sarkozy says euro is too strong” http://www.businessday.com.au/sarkozy-says-euro-is-too-strong/20080328-222n.html (28.3.08)

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