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Keep in mind that when the Euro went of (Jan 1, 1999), it was about $1.19US to 1E. It reached parity (one for one) in late 1999 then fell fell as low as 0.90$ (90 American cents, late 2002) could buy 1E. Late 2002 to early 2003 were heady days for we Americans spending time in the EU. Things were cheap for us.
In July 2008 it cost about $1.60US to buy 1E. Many stopped going to EU countries as the US Dollar did not go far plus the US economy (disposable dollars for trips to EU) was not to hot.
Today about $1.25US buys 1E.
The EU is about 25 countries that act as one big trading zone with a total economy of about $18 Trillion which is a bit more then the US $15 Trillion economy.
I am not an economist, so do not quote me.
We are one country with one government and we cannot agree on the bailout we did to protect industry and the US Dollar so imagine if we were from 25 different countries.
When you are out of work and I am not, it is a recession.
When I am out of work, it is a depression.
As Bill Clinton said, it is the economy stupid......LOL
I am curious and am sure someone out there can enlighten me: Why does the Euro trade higher than the Dollar?
With all the issues with Greece, Italy, France and others how does the Euro trade at a premium to the Dollar?
Does Germany carry the Euro?
Just curious, TIA
The Euro is very tightly held by finance and no government obligations are monetized. So its a perpetually strong currency. Its just proving the myth that strong stores of value in a currency is of no benefit at all. Things are already slanted in the creditor's favor enough. Our central bank monetizes da guberment obligations and dilutes the bank credit share of the money supply. It keep dollars circulating instead of being hoarded.
And yes Germany uses the Euro as does most of Western Europe. Swiss Franc, British pound, and Norwegian/Swedish Krona are the notable exceptions.
The exchange rate has to do with the quantity of money (or "money supply"). The change in exchange rate has to do with how much confidence the financial markets have in each currency.
The exchange rate will change as countries print more (or rarely, less) money. If the US doubles the amount of money supply in circulation and the Eurozone keeps their money supply constant, the number of dollars per Euro will double, so the value of a Euro will double (it can now trade for twice as many dollars).
Don't forget, it's coincidental that US $1 is close to 1 Euro so thinking $1.60 = 1 Euro means the Euro is stronger may not be true. One has to ask how quickly can one earn US $1 and what it will buy compared to 1 Euro.
A better example might be US $1 vs 1,543 Italian Lira. Will US $1 buy 1,543 of something in Italy that costs $1 in the US? No. So, which is stronger? That depends, what will 1,543 It. Lira buy in Italy compared to what US $1 will buy in the US.
Don't forget, it's coincidental that US $1 is close to 1 Euro so thinking $1.60 = 1 Euro means the Euro is stronger may not be true. One has to ask how quickly can one earn US $1 and what it will buy compared to 1 Euro.
A better example might be US $1 vs 1,543 Italian Lira. Will US $1 buy 1,543 of something in Italy that costs $1 in the US? No. So, which is stronger? That depends, what will 1,543 It. Lira buy in Italy compared to what US $1 will buy in the US.
You also have to consider the currency traders. Its just like scalping tickets. If the speculators think they can buy the ticket to the opera and sell it for more then it will drive up the ticket prices. Its works that way for currency . An Aussie dollar is like a ticket to the Aussie economy. So speculators can buy it up essentially making the currency cost you more. Currency speculation can really warp the economic reality. It can also really screw up small countries.
You also have to consider the currency traders. Its just like scalping tickets. If the speculators think they can buy the ticket to the opera and sell it for more then it will drive up the ticket prices. Its works that way for currency . An Aussie dollar is like a ticket to the Aussie economy. So speculators can buy it up essentially making the currency cost you more. Currency speculation can really warp the economic reality. It can also really screw up small countries.
I would worry more about government intervention in the currency markets then speculation. Govt intervention warps the markets much more than anything else.
I would worry more about government intervention in the currency markets then speculation. Govt intervention warps the markets much more than anything else.
In the case of the U.S.. the Federal Reserve System is relatively unique from other countries' Central Banks in that it is not directly and wholly "controlled" by the gov't. nor does it print currency. Therefore, the U.S. gov't. can't intervene in the currency markets the way other countries can.
Also, the Federal Reserve tends to intervene in the currency markets primarily to stabilize the short-term volatility of US$ exchange rates; whether it's to increase or decrease the value of the US$.
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