Seemingly simple question: Why is the U.S. Dollar taking such a beating against the EURO?

Question

Just wondered.

Also...When the US Dollar is so low valued against other curriencies, is this a prelude to domestic inflation?

There may not be a simple answer...or there might be? I might as well forget visiting Paris anytime soon!

Answer 1

there are many factors, but the most imp seems to be a recession in the US economy. its not just the euro, other major currencies like the yen, chinese yuan and the indian rupee have gained well vs the $
inflation and housing data, as well as poor GDP growth have led to this recession
yes, low value of a currency can indicate domestic inflation rising, but it can mean a lot of other things
this recession is expected to last longer.
try visiting some place in side the US for this season, and see about Europe or Asia later!

Answer 2

Why is the dollar dropping relative to the euro? Anticipation of fiscal problems, mostly. European countries as a group are not in the greatest of fiscal shapes, but their condition is stable. The U.S., in contrast, continues to increase the budget deficit, which at some point should lead to higher inflation.

So here's the answer to your second question: the drop in the value of the dollar is not necessarily a prelude to inflation, but the budget deficit is usually a prelude to both drop in the value of the dollar and inflation...

Answer 3

little-noted Iraq move to defy the dollar in favor of the euro, in itself, was insignificant. Yet, if it were to spread, especially at a point the dollar was already weakening, it could create a panic selloff of dollars by foreign central banks and OPEC oil producers. In the months before the latest Iraq war, hints in this direction were heard from Russia, Iran, Indonesia and even Venezuela. An Iranian OPEC official, Javad Yarjani, delivered a detailed analysis of how OPEC at some future point might sell its oil to the EU for euros not dollars. He spoke in April, 2002 in Oviedo Spain at the invitation of the EU. All indications are that the Iraq war was seized on as the easiest way to deliver a deadly pre-emptive warning to OPEC and others, not to flirt with abandoning the Petro-dollar system in favor of one based on the euro.

Informed banking circles in the City of London and elsewhere in Europe privately confirm the significance of that little-noted Iraq move from petro-dollar to petro-euro. ‘The Iraq move was a declaration of war against the dollar’, one senior London banker told me recently. ‘As soon as it was clear that Britain and the U.S. had taken Iraq, a great sigh of relief was heard in London City banks. They said privately, “now we don’t have to worry about that damn euro threat. Ever wonder why we invaded Iraq?????

Answer 4

the pound has always been more also.