MBA Students living with Dollars…
What’s going on with the Euro vs the Dollar?!
I think most of the students that live in Europe and have US dollars are very concerned about the recent exchange rate of the Euro vs the Dollar. The Euro has been trading as high as $1.50, the strongest since August 2008. I started investigating the opinion of some of the European and US officials and like us, they are also very concerned. Recently, French President Nicolas Sarkozy called the move a “disaster” for the economy while Timothy Geithner, US Treasury Secretary, commented “…it is very important for the US to have a strong Dollar”.
So why are they so concerned?
Well, mainly because as the Euro strengthens it makes the exports more expensive to overseas buyers, hurting the region’s competitiveness. This, plus the excessive volatility affect the economic recovery of the Eurozone which in turn can impact most economies around the world due to the globalized system in which we live. The US has no real incentive to have a stronger Dollar in the short term considering the weakness of the economy and so Geithner’s comments would appear to just be directed to investors in dollar-denominated assets, such as China.
What’s next?
The European economy is still too weak and so it would seem likely that we will continue to see low interest rates for a while and, combined with significant government expenditure and the ECB providing liquidity to banks through various programs to get credit flowing again. It is difficult to see a significant weakening of the Euro soon. However, many economists believe that a recovery in the US is likely to happen before the Eurozone.
So we should watch out for a rise in interest rates first in the US lifting the dollar and helping out us, students, holding dollars. Hopefully now, its just a matter of time…
Posted in Life on campus