Why is the Euro climbing so much vs the USD?

Question

Why is the Euro currency vs American dollar climbing so much? Does this mean Europe's economy is stronger than the US? The rate is 1.42 today, will it ever reach 2?

In France too you want to shop 'made in France' but its almost always 'made in china' too

Answer 1

Honestly, most of the answers here are crap.

The US Dollar, like most other modern currencies, is called a Fiat Currency. That means that there is nothing "backing" the dollar. Not too long ago, the paper in your hand was a representation of gold or silver held in a vault somewhere. Today, it's just paper.

Currencies today are traded, held, and sold, just like stocks, oil, gold, and other commodities. If somebody is holding a large amount of US Dollars--the central bank of a foreign country, for example--decides to sell them off quickly, the same thing happens as when someone sells of ANY commodity quickly: The market is flooded and the value drops.

So it becomes psychological: What makes people sell off their holdings of US Dollars? It could be a number of things. People sell stock in companies all the time, and it's not just because those companies are poorly managed.

I know this isn't a neat and tidy answer, but it's the truth.

Now, the government has some influence over the market, and yes, the current Administration has chosen a Weak Dollar policy.

This is where it's good to ask the question: So what? The dollar is weak, so what? What's the problem with that? IS that even a problem at all?

Well, for us in the middle class who want to travel abroad, it does hurt, a lot. But what if you're General Motors? All of a sudden your cars are far more affordable for those in Europe or Canada. If you're in that position, you LOVE the weak dollar.

A couple more thoughts..

The weak dollar does not directly affect oil prices because the global oil market is traded in US Dollars. It's been speculated that one day the Euro may take the place of the dollar, but that's not an easy transition.

Furthermore, it doesn't much affect our second-largest trading partner (china) because the Chinese Yuan is pegged by the Chinese Gov't to rise and fall in correlation with the Dollar. That is, when the dollar goes down, the Yuan follows.

All the rest of the reasons people give -- balance of trade, etc -- are red herrings. The only thing that investors NEED to know to invest in a currency is that it's going to be around in the future and that it's not going to be devalued (see: Russian Ruble, Mexican Peso). In those terms, the USD is stable.

It's all economic. BushCo says "we're going to cut policies designed by Clinton to strengthen the US Dollar" as an investor holding a billions of USD, you can decide to sell off now (imagine this happening back in 2001). So you sell your USDs and buy Euro's. Other investors do, too. Over 6, 7 years the USD falls. Another administration is coming soon, so you see speculators thinking that the USD will reboudn... so they sell they euro's and buy USD's. With each trade, the USD increases in value and, if they're selling Euros to buy USDs, the Euro decreases in value a bit.

Compounding that, when the value gets too low, people see that as a buying opportunity. That is, it's likely to raise again, so you might as well buy now. Likewise, when the Euro or CAD increases too high, people get nervous and they're not likely to buy-in to those currencies at their peaks.

Above all in market dynamics is equality. If a value drops too low, the markets shift and it increases. If it gets too high, the markets shift and it drops.

EDIT:

Whoever said the Euro has always been more valuable than the USD is just wrong. This isn't opinion, this is historic fact. Look it up next time.

Answer 2

At the moment yes, Europe's economy is stronger than ours. One reason for the sudden raise in the euro's value is due to they have more than just one country using the euro. Several countries are using it, which helps out a lot. The Great Britain pound is the money worth the most right now. It's also partly to do with the american dollar declining after 9/11. The economy just hasn't been able to bounce back and we also print money that we don't have the gold to back it up which eventually will lead to one of the biggest recessions the world has ever seen. So I'm going to move to Europe and work the rest of my life there then retire back in the states. So I can take how much retirement money I have and alomst double it when I come back to the states!!! I suggest you do the same!!

Answer 3

Bush has trashed the dollar by printing so much new money since he has been in office. There is no new program, just about, that he won't fund.

All the money we collect, almost, in income taxes goes to pay the national debt. The rest is borrowed. This borrowed money is the problem. More dollars chasing the same amount of goods and services. That is why gold is so high. The dollar goes in the toilet, and so gold is a safe haven and always has been.

Europe is living on a false economy, and there is no real explanation why the Euro is doing so well. It is all fiat money, anyway. Nothing backs it but the promises of dying regimes.

Answer 4

The Euro is growing in value because the whole of Europe is growing economy. This does not mean that their economy is stronger than ours only that it is growing at a much faster rate than we are. As for the Euro reaching a 2 to 1 rate that is poss able being are economy is at a stand still right now and their is continuing to grow.

Answer 5

The United States' economy is falling because of the war. Europe's economy is much stronger than ours, as well as the UK and Canada.

Answer 6

Euro is climbing Becuse USD is in debt for next 3 decades.
have u seen how much debt the 'average' working poor person has?
not counting government debt. more foreign nationals on US debt notes than Americans do.

Answer 7

The Euro has been stronger then the USD since it came out, I think it will more then likely always be stronger. Geez the canadain dollar is stronger then the US dollar.

Answer 8

Many factors play into the exchange rate...trade imbalance, war spending, housing slump/defaults, interest rates, etc. I think it's unlikely to reach 2.

It is an opportunity for the US to buy back $$$ on the cheap after sending them abroad at significantly hagher values.

Answer 9

because the us imports more than it exports. we are not doing anything to 'earn' our dollar, so to speak.

by definition, europe's economy is stronger, because they import AND export their goods. they dont rely on any other countries to supply their well being, unlike the US.

when was the last time you saw "made in america" on your plates or glasses?

Answer 10

Because Bush and his trustees cant manage anaything successfully. Today, the American Dollar fell below the Canadian Dollar. http://www.xe.com/ucc/convert.cgi