European trade won’t collapse.

As the dollar started to decrease in value in 2002, some European ministers worried about Europe’s export, as it would become an advantage to import in Europe rather than to export.
The dollar kept losing value against the euro with no big consequences for European export due to the growing European economical strength. As the euro recently gained an unseen value against the dollar, European industrial export rose in Germany, Spain, France and Italy.

Loïc Steelandt

Source: http://www.nytimes.com/2008/03/19/business/worldbusiness/19euro.html?scp=15&sq=dollar%20euro&st=cse

Inflation softens the loss of the dollar.

In the last years the value of the dollar has made a spectacular fall compared to the euro’s value. In last year it has lost up to 18 percent against the euro. Nevertheless, some economists point out this is not an effective exchange rate, they rather the trade-weighted exchange rate, which measures a basket of currencies in both countries an compares them. From that point of view, the dollar has only lost 8.6 percent, which is less more dramatic, but it still indicates the decrease of value of the dollar against the euro.

Loïc Steelandt

Source: http://www.nytimes.com/2008/03/19/business/worldbusiness/19euro.html?scp=15&sq=dollar%20euro&st=cse

The FED hurts the dollar.

The current financial crisis started in the USA, and what seemed to be an ironical evolution has now reversed. Initially the dollar, who was losing value against the euro since 2002, rose from its fall due to the crisis. But even that positive evolution won’t survive the crisis. One day after de Federal Reserve lowered the interests to near zero, the dollar lost 4 cents to the euro, which is the largest single-day jump since the euro’s birth in 1999. This collapse of the dollar was much bigger than expected.

Loïc Steelandt

source: http://www.nytimes.com/2008/12/18/business/worldbusiness/18euro.html?scp=1&sq=dollar%20euro&st=cse

Dollar tumbles against euro

Since 2002, the American dollar has been decreasing in value against the euro, reaching a peak in devaluation in 2008.
In May 2008, a lot of Europeans were enjoying their cheap American vacations, this as a result of the euro raising above $1.60 for the first time ever.
The last few months, as the global financial crisis broke out, the dollar was finally gaining value against the euro. This trend would have continued, if it weren’t for the Fed lowering its interest rates, causing the euro to jump once again to a height of $1.43 today.

http://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/dollar/index.html?scp=1-spot&sq=dollar&st=cse

Jasper Soete

Tumbling rates

Europe’s central banks make drastic cuts in interest rates to ward off a recession. Three European central banks cut interest rates. The Swedish central bank announced a reduction of 1.25%. The Britain’s central bank carries through a reduction of 1%. As last, the European Central Bank reduces the benchmark rate by 0.75%. The central banks make this dicision to offer an answer to the threatening recession. By cutting interest-rates they want to boost the economic activity. The big rate cuts brings relief as European centrals banks ride to the rescue. But it shows also the earnestness of the situation.

Vincent Tavernier

http://www.economist.com/world/britain/displaystory.cfm?story_id=12719463

Emerge from the doldrums

The dollar is improving it’s exchange rate position after a long period of recession.
The rally of the dollar ows to the stagnating economies in the rest of the world.
Other economies are the victim of the financial troubles triggered in the US. Now, the dollar is taking advantage. The currency also gets profit of the falling oil prices and interest rates will head forward. The fear of a dollar rout, which has long stalked financial markets, now seems to have lied down.

Vincent Tavernier

http://www.economist.com/world/britain/displaystory.cfm?story_id=12719463

Fed goes to zero interest rates

The Federal Reserve has announced that it will lower its benchmark short-term interest rate to somewhere between 0 and 0.25%. The lowest ever recorded. With this initiative, the Fed wants to preserve price stability and promote the resumption of sustainable economic growth. Falling consumer spending and increasing unemployment should be put to halt.
Since currency values and interest rates go hand in hand, the Fed’s decision to lower the interest rates also has its downside. Investors get better returns on their cash in countries with higher interest rates, such as the European countries where the benchmark rate is at 2,5%. This may cause a potential drain on the dollar…

http://www.economist.com/finance/displaystory.cfm?story_id=12818300

Jasper Soete

Weak dollar weighs on Airbus

In the late afternoon of April the 23^rd, 2008, the euro crossed the barrier of $1.60.
Because of this gain in favor of the euro, exporters producing products which are priced in dollars are having hard times. Airbus for example, says it will raise the price of its aircrafts.
While metal prices are climbing fast, the dollar has lost a lot of value against the euro these last years. And since aircrafts are for about 40% made out of metal, Airbus has to get that extra money from somewhere.
Struggling to reduce the effect of unfavorable exchange rates, they are also trying to reposition its production to transfer more costs into dollars.

http://www.nytimes.com/2008/04/23/business/worldbusiness/23dollar.html

Jasper Soete

Resilient dollar

The dollar withstands suprisingly well the panic in the financial markets. Dollar assets stay the most popular to invest. Even in financial crises the persistent demand for Amercican assets is remarkable. The size, liquidity, efficiency and transparency of the American financial market attracts foreigners to invest in America. The dollar satus as the global currency reinforces the appetite for the currency. Private investors feel safe by bying the same currency that central banks keep. Savers still find that they sleep a litlle easier with dollars under the mattress, rather than other currencies.

Vincent Tavernier

http://www.economist.com/research/articlesbysubject/displaystory.cfm?subjectid=348930&story_id=12341545

20 ways to take back the 20% our dollar lost to the Euro

In February 2008 the dollar plummeted 20 % and it didn’t intend to recover in the near future. The logical consequence was that the cost of the euro climbed from $1.20 to $1.50. While in Europe the countries are not allowed to run deficits, in the United States this is obvious. All these facts make their travel dreams to Europe turn into an expensive nightmare.

To make them affordable the author describes 20 ways to take back that 20% fall in dollar’s value. They propose simple money-saving opportunities as skip the hotel breakfast, but recommend also cheap tips, simple hotels… .

http://travel.latimes.com/articles/la-trw-20-ways-take-back-20-percent-dollar29jan08?parent=europe&type=destinations
Wouter Staelens

King dollar no more

The global financial slump led to a change in the balance of power between the euro and the dollar.
As a matter of fact the dollar soared in value against the euro and resumed its role as a haven. Investors reacted immediately and sold the dollar in favor of the euro. This phenomenon had big consequences. On the one hand the euro reached a two-month high rate of $1.34. On the other hand the greenback tumbled for the first time in thirteen year to a low of 90.57 yen.
All these signs point out that the dollar has lost his reign.

http://latimesblogs.latimes.com/money_co/2008/12/post.html Wouter Staelens

Currency comeback

The forecast of the paths of exchange rates has always been a tough assignment for economists.

The past financial crises didn’t make it any easier, but analysts mean that the dollar’s decline against the euro and some other leading currencies will go into reverse. Researchers found out that the European central banks have more room to cut rates than in America, but the outlook for growth is even worse than in America.

Although the shrinking American interest ra tes and the exchange rates on Treasury notes in bad conditions, which define generally the demand for a currency, economists point out that if 2009 brings a currency crash, the dollar is unlikely to be the victim.

http://www.economist.com/theworldin/displaystory.cfm?story_id=12494697
Wouter Staelens