[Yahoo] Dollar hits new low against euro

peleincubus · Jul 16, 2008

bigtexxx said:

The European Central Bank can't lower rates because Europe's labor markets are so incredibly inflexible, which is leading to inflation over there. That has contributed to the rising Euro of late. Believe me, the Europeans aren't thrilled about their rising currency versus the dollar (cripples their exports), unless they're heading to Miami for vacation
Click to expand...

it suckssss to. its the biggest reason i didnt go to europe this summer. just fealt like my money is streched too thin versus if i would have went for a 4 month vacation 5 years ago.

i really hope the dollar makes a comeback in the next year or two. but it seems pretty hopeless...

radapharoah · Jul 29, 2008

I tend to agree with this index...

The Big Mac Index

Sandwiched
Jul 24th 2008
From The Economist print edition

Burgernomics says currencies are very dear in Europe but very cheap in Asia

EVER since the credit storms first broke last August, the prices of stocks, bonds, gold and other investment assets have been blown this way and that. Currencies have been pushed around too. Did this buffeting bring them any closer to their underlying fair value? Not according to the Big Mac Index, our lighthearted guide to exchange rates. Many currencies look more out of whack than in July 2007, when we last compared burger prices.

The Big Mac Index is based on the theory of purchasing-power parity (PPP), which says that exchange rates should move to make the price of a basket of goods the same in each country. Our basket contains just a single item, a Big Mac hamburger, but one that is sold around the world. The exchange rate that leaves a Big Mac costing the same in dollars everywhere is our fair-value yardstick.

Only a handful of currencies are close to their Big Mac PPP. Of the seven currencies that make up the Federal Reserve’s major-currency index, only one (the Australian dollar) is within 10% of its fair value. Most of the rest look expensive. The euro is overvalued by a massive 50%. The British pound, Swedish krona, Swiss franc and Canadian dollar are also trading well above their burger benchmark. All are more overvalued against the dollar than a year ago. Only the Japanese yen, undervalued by 27%, could be considered a snip.

The dollar still buys a lot of burger in the rest of Asia too. The Singapore dollar is undervalued by 18% and the South Korean won by 12%. The currencies of less well-off Asian countries, such as Indonesia, Malaysia and Thailand, look even cheaper. China’s currency is among the most undervalued, though a bit less so than a year ago.

The angrier type of China-basher might conclude that the yuan should revalue so that it is much closer to its burger standard. But care needs to be taken when drawing hard conclusions from fast-food prices. PPP measures show where currencies should end up in the long run. Prices vary with local costs, such as rents and wages, which are lower in poor countries, as well as with the price of ingredients that trade across borders. For this reason, PPP is a more reliable comparison for the currencies of economies with similar levels of income.

For all these caveats, more sophisticated analyses come to broadly similar conclusions to our own. John Lipsky, number two at the IMF, said this week that the euro is above the fund’s medium-term valuation benchmark. China’s currency is “substantially undervalued” in the IMF’s view. The dollar is sandwiched in between. The big drop in the greenback’s value since 2002 has left it “close to its medium-term equilibrium level,” said Mr Lipsky.

If that judgment is right, the squalls stirred up by the credit crises have moved at least one currency—the world’s reserve money—closer to fair value. Curiously the crunch has not shaken faith in two currencies favoured by yield-hungry investors: the Brazilian real and Turkish lira. These two stand out as emerging-market currencies that trade well above their Big Mac PPPs. Both countries have high interest rates. Turkey’s central bank recently raised its benchmark rate to 16.75%; Brazil’s pushed its key rate up to 13% on July 23rd. These rates offer juicy returns for those willing to bear the risks. Those searching for a value meal should look elsewhere.
Click to expand...

Sweet Lou 4 2 · Jul 29, 2008

Air Langhi said:

To anyone who knows forex market, why is the dollar so weak, other than the interest rates? The EU has a worse economy than us, and has a larger debt? Why has their currency appreciated so much?
Click to expand...

our trade deficit for one (so many american dollars out there chasing other currencies).

low interest rates

budget deficit

war in iraq - war tends to bring down the value of a currency

problems with financial institutions

weakening economy / flat growth

protectionism from other economies (reluctance to import american goods)

Forums

[Yahoo] Dollar hits new low against euro

peleincubus Member

radapharoah Rookie

Sweet Lou 4 2 Member

Share This Page

About ClutchFans

Rockets Content

Support ClutchFans!