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THE EURO IS continuing its race towards parity with the US dollar – but things could get worse for transatlantic holliers with warnings the currency will plumb far greater depths within a few years.
The exchange rate hit a new 12-year low today when the euro plunged below $1.06 on expectations US regulators would soon raise interest rates for the first time in nearly a decade to unwind a bit of pressure in the expanding economy.
That likelihood sits in stark contrast to the situation in Europe, where the ECB has been running record-low interest rates and this week unleashed its quantitative-easing (QE) programme to try and get growth going.
Only a year ago the euro was bobbing along at close to $1.40, while in 2008 it peaked at nearly $1.60.
A move towards equal footing with the US dollar has already been widely tipped, but some analysts have predicted it has much further to fall still.
In a new briefing note, Deutsche Bank’s Robin Winkler and George Saravelos said they expected the euro to hit parity before the end of the year and a “new cycle low” of 85c by 2017.
That would be the lowest trading price for the currency since the changeover period in 2002.
The record fall would come from the analysts’ so-called “euroglut” scenario – a combination of the ECB flooding the market with new euro through QE and the region’s massive current-account surplus.
The surplus story
The pair believe that surplus – which represents net savings within the eurozone - will inevitably flow to foreign markets and the outward stream of money will keep the currency in the doldrums for years to come.
Germany, which contributes easily the biggest share of the surplus because of its all-powerful export industries, has previously been accused of derailing other countries’ growth by failing to spend that money at home and instead focussing on lending to everyone else.
But the flip side to the bad news for the euro is that the more it drops, the more competitive European (and of course, Irish) exports become when they are shipped outside the currency bloc to places like the US and UK.
That *should* eventually stimulate economic growth and give the currency a boost back towards its longer-term values.
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The result of printing €1 trillion Euro. This was expected.
Exactly. Don’t think the author seems to realise. Then again they do love a good old sensationalist and I’ll informed article.
*oil
@J I’ve said in the article that QE is the reason for the drop and that there’s good reason for the ECB/governments to want a cheaper euro, although it’s not so great for consumers
Good for tourists coming here, too. It might be a bumper year!
There is no direct relationship between monetary expansion and foreign exchange devaluation.
The U.S has implemented a much larger QE program than the EU and has added $3.5 trillion to its balance sheet since 2009.
http://www.bloombergview.com/quicktake/federal-reserve-quantitative-easing-tape
Despite this massive dollar expansion, the dollar gains in value against the Euro whose latest QE program has only just added €60 billion to the ECB balance sheet in the first installment.
(There are no models which can accurately predict Fx movements such is the number and complexity of variables involved.)
That’s not to say QE is an effective measure to restore the real economy for the benefit of the majority of the citizens. Instead of pumping reserves into the parasitic financial system under QE, a much more effective stimulus would see the money placed directly into the hands of the ordinary citizens to spend in the local economy to stimulate growth and jobs.
Here’s an Oxford economics professor calling for the ECB to provide every worker and pensioner in the Eurozone with a payment of €500 in order to help reflate the domestic economies.
It’s not good for savers. It’s effectively a tax on saving which kicks the can down the road, forcing people to rely on the state for retirement costs.
If Mario draghi was running an Irish Farm as a manager – he would be long gone – funny how banking rewards incompetence of such a magnitude !
It is interesting to note that Ireland have lost voting rights in the E.C..B
Mario Draghi is beginning to look like an evil enemy of the Irish Nation with the Irish State willing to help him in his work !
They printed €50 billion this month.
Glad I just got paid in dollar….
Get out while you can. Europe is only suitable for the super poor and the rich. The middle class can’t win.
Speak for yourself, I’m doing just fine.
Time for Ireland to sack the current government – they have impoverished the nation while acceding to every request from an E.C.B. that is red rotten useless .
4 million people who own gas fields and oil fields and who produce enough food to feed 40 million people while at the same time time producing enough milk to feed 15% of the world’s bottle fed babies while also having the richest fishing grounds in Europe is not a poor country -
It is merely ,mismanaged spectacularly by FFF FG and LAB under instruction from a Troika that have no legal standing in the Independent State of Eire !
@Madra…that the slogan for the FG election campaign? ‘F**k you , pull up the ladder, I’m alright Jack’? Sounds just the right fit for FG..
It will not be good for the Irish consumer.
We rely heavily on imports from the UK, and those imports will be a lot more expensive
You’re a fine pathetic excuse of a absolute tw@t sammy judging by comments here and on other articles on the journal today … Sh@te stirring mangy mutt just like Ure photo !
Voice – many of those imported goods from Britain are exported from here first at cost price …. processed and then returned to us at astronomical prices – it is the exact same as the economics of the Famine and Enda is sitting in Trevelyan’s seat .
Finally something good for those of us living in the UK. Let the good times roll when we return home for a break.
Dinner and drinks are on me.
And people slagged off the UK for keeping their own currency while the Irish jumped in with both feet before even looking.
This is pretty poor tabloid writing Peter.
Yes, the Euro could hit 85c but an asteroid could also destroy the earth. The consensus view is parity and 85c is the view of only two analysts neither of whom are hugely respected. This is an article supposed to provoke scared anguish instead of economically inform people.
I mean if we were going to worry the consistent current account deficit of the UK would be one of the major worries. Running a surplus can be destabilizing but it’s not going to cause your currency to collapse.
@Verge harry. Thanks for the comment – the article’s pretty clear this is only the view of these analysts and that parity has been widely tipped. But its a bit of stretch to say there’s any kind of consensus – do you have anything to back that up, or the claim these analysts have no idea what they’re talking about? I’ll gladly include if that’s the case. Also, I’ve said a low euro should be good economically in the long term – but that doesn’t mean it’s not grim news for a lot of consumers
We have Syriza to thank for this, the Sinn Fein of Greece.
Yeah, the last ten years count for nothing!
No we have the Central Bankers from the Eurogroup to blame for this !
This is simply ECB policy.
The Euro was overvalued at $1.40 and a reduction in value will drive exports. Remember a high euro is what drove companies like Waterford Crystal out of business.
Bad news for an American or British holiday but not bad news for Americans or British coming here on holiday.
Sammy what a ignorant comment! If Syriza had have won out it would have been very different! Syriza have fooled the people who voted for them with fairytale populist policies! They are backtracking at an almighty speed! Just the same way as SF where found out in the North when they agreed to Austerity! They too now are trying to backtrack ! Clown
You forgot to mention FG’s/LAB’s/FF’s/The Green’s/The PD’s
The Irish financial regulator’s
The Irish Central Bank’s
“little” contribution Sammy
We import most of what we use so it will also kill us at the same time.
Great for Irish producers and tourism. We are now much cheaper to visit and buy from.
Bad news for those travelling or buying goods from America.
Bad news for consumers in Ireland. Prices will go up. Our biggest trading partners are the UK and US. £1 is now €1.42 up from €1.18. Prices in British stores here will go up.
Good. Maybe people will buy Irish and support Irish stores.
Like Dunnes and Supervalu? One treats its staff like S hit the other uses Scambridge. Yeah let’s support these.
Sterling a similar story. Mates just back from a stag weekend in England. A pint of beer was costing on average €5 once the currency conversion kicked in. No value there either.
Good Maybe people will spend money in Ireland then
Should keep more money in the country and attract more tourists from outside the eurozone.
The government will have to be careful for import push inflation. Everything Ireland imports will cost more and while our exports will be cheap… They too will rise in cost as much of what we export is made from raw ingredients that we import.
ah jasis going in October .
Buy it now so.
In other news–Macy’s has let go 200 workers at their NYC flagship store.
Just learn how to trade it folks
Few cans, be grand.
US still a cheaper holiday than a couple of weeks in the UK
Soon …. $ = €
You can’t print perceived weather unfortunately and even this 12 year old girl knows what a farce the whole monetary system is.
wealth rather
Sure why would you be wanting to go to the states anyway, there’s a McDonalds in nearly every town in Ireland?
Hooters
You win some, you lose some.
We are an export driven economy. A cheaper euro against the dollar and pound will help drive exports and create jobs in this country.
More expensive imports will cost you a lot more.
Ah for f&ck sake…stop!
Prob going to hit even by the end of next week at the latest.
Buy up the bitcoins
A good boost for tourist industry
I’ve got a very good colour printer. Perhaps I should print off a few Euro notes to help me with the falling exchange rates. If it’s good enough for Mario Draghi and it’s OK for him to do it then it should be OK for me also. After all we’re all Europeans aren’t we? I sure am glad I voted NO to joining the EEC in 1972.
have your say