Thursday, October 25, 2007

Predictions for Euro - Dollar 2008

During 2007, the Euro has appreciated sharply on the back of a falling dollar. Some now consider the Euro as an appropriate heir to the world's dominant currency. There is speculation that OPEC countries will increasingly start to price oil in Euros rather than dollars. Although this is mostly speculation at the moment, if it did occur then it would strengthen the value of the Euro.

The euro is currently trading at about 1 Euro = US$1.42 - staying short of its latest all-time high against the U.S. currency.
When the Euro was launched in 2001, the exchange rate was 1 Euro to 1 Dollar.

The Euro economy is showing signs of renewed growth, with subdued inflation. Economic growth is currently a steady 2.5% with inflation right on target at 2%. This creates a good economic environment for a strong currency. With inflation under control, the ECB can maintain low interest rates and allow the economy to expand. However, if growth picks up next year, interest rates could continue to remain higher than US interest rates, this will could cause a further appreciation. Interest rates are currently 4.66%

There have been concerns that the appreciating Euro is causing hardships for European exporters, but at the moment demand is proving to be quite inelastic and not particularly sensitive to changes in the currency. If anything European exporters are proving resilient in maintaining export sales.

No comments: