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The Almighty Buck EU United States

European Currency Close To Reaching Parity Against Dollar (bloomberg.com) 120

Posted by BeauHD from the one-for-one dept.
An anonymous reader quotes a report from Bloomberg: Europe's common currency edged closer toward parity with the US dollar Monday as energy concerns and the risk of recession weighed on the outlook for the euro area, while risk aversion fueled a broad rally in the greenback. The euro dropped as much as 1.3% to $1.0053, eclipsing its low from last week. The last time it was this low was back in 2002. The currency's downward spiral has been swift and brutal, given it was trading around $1.15 in February. A string of increasingly-large Federal Reserve interest-rate hikes has supercharged the dollar, while Russia's invasion of Ukraine has worsened the outlook for growth in the euro zone and pushed up the cost of its energy imports.

George Saravelos, global head of FX research for Deutsche Bank, told Bloomberg Surveillance Monday he could see the euro moving under parity, especially in the scenario of a "complete gas shutoff" from the Nord Stream 1 pipeline. The bank is pricing the euro to move in between a range of 0.95 to parity against the dollar, he said. "I really wouldn't say 0.95 would be unreasonable," Saravelos said. "Even if this gas returns in terms of full flow after the maintenance period, the (risk) premium is unlikely to go away. And I think that's a critical thing that's changed over the past few weeks."
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European Currency Close To Reaching Parity Against Dollar More

European Currency Close To Reaching Parity Against Dollar

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    • p.s Inflation is the inverse of a devalued currency

    • Re:Inflation - this is all you need to know: (Score:5, Funny)

      by 93 Escort Wagon ( 326346 ) on Monday July 11, 2022 @08:48PM (#62694876)

      Bah. As soon as I noticed that the "Hayek" mentioned in that PDF's title wasn't Salma, I lost interest.

    • Re:Inflation - this is all you need to know: (Score:5, Interesting)

      by phantomfive ( 622387 ) on Monday July 11, 2022 @09:09PM (#62694914) Journal

      An old and questionable link, but looking through it, we can see this:

      "The chief cause of inflation, Hayek wrote, is governmental control of the money supply."

      Interesting idea, but false. We know it's false because we've seen inflation even in money supplies that are outside of governmental control (for example, the gold standard when the cyanide purification technique was discovered, dramatically increasing the supply of gold in the world).

      Empirically, inflation is governed by the equation MV = PQ [stlouisfed.org]. For small changes, this is equation is difficult to work with because measuring PQ involves a lot of rough estimates. For larger changes, that is not a problem, however. (And that is a measurement problem, not a theoretical problem).

      • Interesting idea, but false. We know it's false because we've seen inflation even in money supplies that are outside of governmental control (for example, the gold standard when the cyanide purification technique was discovered, dramatically increasing the supply of gold in the world).

        I don't get it. You're attempting to debunk a one-sentence summary of a much larger argument that describes the "chief" (meaning most important) cause of inflation by pointing out one obscure and minor technological advance? You have, perhaps, shown that there is at least one example of technological driven inflation, but you have not even addressed the point that governmental control of money supply is the chief force behind inflation.

    • I donâ(TM)t know how much to read into this. The euro has fluctuated a lot in the past 20 years, trading for 60 cents per euro to well over a dollar. It has only been the past two years that it has been low. 7 years ago it was pretty high.

      One issue we do have is the US has always been the conservative predictable economy. We have not in the past prioritized one industry, or created confusing rules. For instance, the radical change in taxes, the one page firm, a few years ago, created feast chaos in

  • Europe's common currency edged closer toward parity

    "Reaching parity" has positive connotations — what marvelous way to report the decidedly bad news. No, it is the US dollar, that's doing the "reaching", not the other way around.

    Almost like Russians describing the sinking of their ship as gaining negative buoyancy — or reporting a brave retreat in the face of the cowardly enemy's advance.

    • Isn't it basically the euro going back to where it started?

      • The Euro started on Jan 1st, 1999, at $1.17 USD.

        It dropped to $0.83 USD in Oct 2000, then back above $1 by the end of 2002, and then climbed to $1.60 in July 2008.

        Since then, it has stayed above the greenback.

    • I think the sentence is mostly OK, it's just that parity does have a possibly confusing connotation if you're not familiar with the historical values.
      Edged closer is a neutral connotation. You can edge closer to a cliff, or a victory in a race.
      Parity is generally regarded as good, though.

      • Re: (Score:2)

        by Malc ( 1751 )

        The Bloomberg story's title gets it better: Battered Euro Edges Ever Closer to Parity as Dollar Runs Rampant. No ambiguity there.

        • Sure- just the a perfect example of what's wrong with the modern media.
          That sentence is constructed to evoke emotion, not convey information. That's propaganda. True, but still propaganda.

    • No, it is the US dollar, that's doing the "reaching", not the other way around.

      Huh? All the Trump supporters have been telling me how the US economy is going down the toilet ever since Biden got in.

      https://www.milwaukeeindepende... [milwaukeeindependent.com]

      • Re: (Score:1)

        by guruevi ( 827432 )

        The economy IS in the toilet. Perhaps ask your mother how much more she spends on groceries. The thing is that the European economy is even worse off than the US right now. The only ones profiting from these Biden-made crises at this point are Russia, China, Iran and India.

    • "Reaching parity" has positive connotations — what marvelous way to report the decidedly bad news.

      Bad is a matter of perspective. It is a matter of industry, it is dependent on the nature of trade and how GDP is created. One of the great things about the EU and the common monetary unit is that the largest amount of trade is done within the EU itself and therefore the movement of the euro is not quite as important as the movement of say the gilder, the mark or the schilling. And quite frankly the change in the euro has been quite minor compared to the change in some other currencies over time in countrie

      • The main reason for the change here is almost certainly because the US increased the interest rate (thus reducing the number of dollars in circulation) whereas the Euro bank did not. If this hypothesis is correct, then we should see an increase in the Euro's relative value after the ECB raises interest rates.

        • The main reason for the change here is almost certainly because the US increased the interest rate

          Yeah, that must be it. It doesn't have anything to do with the war in the Ukraine causing gas supplies to critical European countries responsible for most of the bloc's GDP being cut off causing an absolute crisis at all levels of industry.

          I like blaming the USA for everything any chance I get, but seriously man, the Euro has been dropping since November when a potential war with our primary energy provider was imminent. The USA's interest rate has precisely zero to do with this, and the same day the USA ra

    • Re: (Score:2)

      by mjwx ( 966435 )

      Europe's common currency edged closer toward parity

      "Reaching parity" has positive connotations — what marvelous way to report the decidedly bad news. No, it is the US dollar, that's doing the "reaching", not the other way around.

      I know it pains you to admit that there is something right with the US today and that you somehow have to twist this into bad news... Whist the Euro is suffering a few problems due to the war in Ukraine, the US Dollar is going strong against almost all currencies, including other currencies that are strong against the Euro.

      • Re: (Score:2)

        by mi ( 197448 )

        I know it pains you to admit that there is something right with the US today

        I know, the results of the upcoming elections already pain you, and that you somehow have to twist even the inflation into good news [cnn.com]...

        But my snark was aimed at the Europeans, you idiot, not the US... :-)

    • it is the US dollar, that's doing the "reaching"

      What does this mean? Both the US dollar and the Euro have high inflation right now, but this has happened because the dollar is inflating less rapidly. That isn't necessarily a bad thing for either party, but how does that translate to the dollar "doing the reaching"?

  • One thing is for sure (Score:4, Insightful)

    by NateFromMich ( 6359610 ) on Tuesday July 12, 2022 @12:16AM (#62695280)
    This is the worst site possible to discuss this.

  • Imho, the US Dollar is currently massively overvalued. If you look at real inflation figures over time, it ought to be worth about 80 Euro cents (that's a WAG).

    Could be due to downwards pressure of the Euro due to the Ukraine war. More likely it'sdue to the US government playing political games, like pressuring European countries to buy lots of dollars.

    Either way, the situation won't last forever...

    • What keeps the Dollar from being more than very coarse toilet paper is its role as a global currency. Every country holds a nontrivial amount of Dollars in their reserves, and none of them has any interest in this losing value. The US can essentially tax the world simply by printing money.

    • Why do you think the dollar is less inflated than the Euro?

  • Euro is falling because its lost its hard currency status. After EU seized Russian foreign currency reserves noone is interested in keeping reserves in Euro. US can force people to accept dollars given 183 military bases around the world. EU simply doesnt have the same clout

    • Re: (Score:2)

      by Tom ( 822 )

      This. Anyone with half a brain is reducing their Euro reserves. Some more quickly than others, but you'd have to be a complete idiot to keep them high after Europe has clearly communicated "we reserve the right to steal your money whenever we feel like it".

    • Re: (Score:2)

      by piojo ( 995934 )

      US can force people to accept dollars given 183 military bases around the world. EU simply doesnt have the same clout

      Can you elaborate on how having a widely spread military forces the world to accept its currency? Is it because they spend a lot of money in other countries or did you mean to imply something more silly?

      • Re: (Score:2)

        by ghoul ( 157158 )
        The silliness is in ignoring ground realities. US plays global cop by spreading its military around the world. The world pays its for the service by using USD for trade.
  • As far back as I remember. I can see worries for US companies exporting to Europe being far less competitive now, but that is the whole point, isn't it? To boost the European relatively competitiveness when we aren't doing so well relatively to the US. Then of course, the European Central Bank keeping interests artificial low is kind of cheating, but that mostly due to Italy huge depth, which they can't handle if interests go up..

  • A currency union, but not a fiscal union (Score:5, Insightful)

    by Budenny ( 888916 ) on Tuesday July 12, 2022 @04:30AM (#62695638)

    The problem for the euro has always been that it was an attempt to have a common currency without any of the state institutions which make such a thing work. They had a difficult situation. Before the euro there each of the old European states had its own currency, own central bank (still does), own tax authority. This meant separate Belgian Francs, French Francs, Dutch Guilders, Deutschmarks etc.

    So it was reasonable to want to go for one currency when you were moving to a single market and customs union, in fact not to do it would have been indefensible.

    The EU's aim has always been to get to being a United States of Europe. The implication of this is that the various state governments shall be reduced to having about the autonomy of US States, and there shall be a central institution with roughly the powers of the US Federal Government.

    This they have not been able to do. The single currency was a step on the way to it, but political union is much, much harder, countries are unwilling to give up their power. To get a clear picture of the EU at present, you have to imagine a USA with few or no executive Federal institutions. No Department of Defense, for instance. No Federal taxes. This is how Merkel was able to invite huge numbers of immigrants into Germany, and thus the EU. No Federal legislature. Yes, a sort of Potemkin Parliament, but its nothing like Congress. There being no Federal welfare payments, there is also no mechanism for the kind of transfer payments which cushion economic disparities in performance between US states.

    Now imagine in such a situation that different states have incompatible approaches to fiscal matters. So the southern states will sell bonds to finance huge deficits - as Italy does. They float them in Euros, that is all there is. The Northern ones will also sell bonds, but against a much more responsible fiscal policy. This will lead to a spread between (eg) Italian and German bonds. The central bank, the ECB, which is attempting to run monetary policy absent any effective help from Federal institutions, will buy up Italian bonds to try to minimize the spread. Why?

    Because if the spread widens too far, its going to result in monetary policy having very different effects in the North and the South.

    The point where all this tension can be seen building is in the Target2 balances. Its too big a subject to cover here, but look it up. Here is a starter:

    https://www.eyes-on-europe.eu/... [eyes-on-europe.eu]

    In the end, this is not going to work in its present form. They will have to move either to full political union, or the Euro will hit a shock which its unable to survive. For instance, an Italian default. We saw this threatened by the 2008 financial crisis, but they got by. Now, with the fallout from the Ukrainian and associated energy crisis they are facing something similar. Its not clear how they get through it in one piece, ie with the Euro intact and no drop-outs.

    This is why the euro is falling against the dollar. There is a risk premium based on the gathering storm. Its going to be a very interesting winter.

    This is, by the way, the reason the UK Treasury vetoed membership of the currency union. Looking like a wise decision.

    • The *politicians* want a full political union. More power for them, at least, the ones at the top. Not many other people really want a United States of Europe.

      Also worth mentioning: the US Federal government has usurped many powers that (by the Consitution) belong to the states. It has become a behemoth.

      For economic matters, the common market worked pretty well for Europe. Time to go back to something similar.

      • Re: (Score:3, Informative)

        by cayenne8 ( 626475 )

        Also worth mentioning: the US Federal government has usurped many powers that (by the Consitution) belong to the states. It has become a behemoth.

        Indeed it has.

        Thankfully, it appears...the recent SCOTUS rulings that an executive department was overstepping its mandated role/powers from congress might be a first step in reeling back these non-elected regulators across the executive branch.

        In this SCOTUS case, it was the EPA, but this should be started to be applied across the board to these departments th

        • Re: (Score:2)

          by ghoul ( 157158 )
          The SCOTUS is starting to make policy which is not their role. Time to appoint 10 more SC judges. There is no fixed no of SC judges as per Constitution or law.

          • The SCOTUS is starting to make policy which is not their role.

            Actually they are not..they are interpreting cases presented to them, per the constitution.

            IN this case, it is preventing UN-elected executive branch bureaucrats from essentially making "law'. That power is reserved to the legislative branch.

            I'm disappointed that Roe was overturned myself, BUT, even Ruth Bader Ginsberg had stated that the Roe decision was based on faulty legal reasoning per the constitution.

            Go back and review your civics man.

            • they are interpreting cases presented to them, per the constitution.

              That's not in the constitution. That's a power that the supreme court seized by declaring that their interpretation of the constitution gave them the power to interpret the constitution. The ability of the courts to overturn laws is based entirely on precedent, and this current supreme court has openly declared that they don't give a shit about precedent.

            • Re: (Score:2)

              by ghoul ( 157158 )
              Legislature passes laws. It is the role of the Bureacracy to create regulations to implement those laws. No Laws are detailed enough to handle all necessary regulation hence leaving it to the professionals. Allowing 9 unqualified people who only have a law degree but know nothing of science and technology to create regulations would lead to chaos.

              The Supreme courts role in US is the same as the Ayatollah's in Iran. To make sure elected officials (and their legitimate subordinates) do not step on the prer
      • current scotus is restoring federalism so that the several states can get back power that has been usurped by the federal government

    • Re: (Score:1)

      by guruevi ( 827432 )

      They did establish the United State of Europe and even established sovereignty over local laws. The USE is basically the USA with unlimited federal power, but no Federal obligations (such as defense, welfare etc).

  • congratulations (Score:2, Insightful)

    by Tom ( 822 )

    I guess congratulations are in order to the US hawks. They've finally reached so many of their goals. Weakening Europe so it's again a satellite and not a potential competitor, avoiding (for the time being) that the Euro replaces the Dollar as an international exchange currency, and dividing Russia and Europe, as has been doctrine for almost a century.

    Amazing what you can accomplish when you use opportunities and the leaders of Europe are either imbeciles are well-bread US think-tank children.

    • Do you honestly think the US has some uber-intelligent strategy??? The US is really a bunch of freedom loving almost anarchists governed by capitalism. We lurch along like a bunch of drunken party-goers.

      The fall of the Euro against the US is easily explained without some kind of weird conspiracy theory.

      In the aftermath of WW2, the US emerged without damage to its infrastructure and had a huge economic boost when it converted wartime production to peacetime production. In order to recover from the damage

      • Re: (Score:2)

        by ghoul ( 157158 )
        If US was not forcing Europe to fight with Russia, Europeans would be happy to ignore whats happening in Ukraine and get on with their lives. Similar wars have been going on in Syria, Libya, Yemen and Europeans got on with their lives. So all the economic effects Europe is feeling right now is because US Hawks have forced them to pick sides in a Civil war.

      • Re: (Score:2)

        by Tom ( 822 )

        Do you honestly think the US has some uber-intelligent strategy???

        No. But I do believe they have a strategy or two. Maybe not intelligent, maybe not always consistent, but also not entirely random.

        The fall of the Euro against the US is easily explained without some kind of weird conspiracy theory.

        There's no conspiracy. Just interests of countries.

        Here's a bit of insight: https://mronline.org/2022/03/3... [mronline.org]

        The Euro has been hit very hard by Russia's war in Ukraine, not some imaginary group of US Hawks.

        The war has ZERO effect on the Euro. It's the sanctions that do it. A lot of the european economy, especially production and export powerhouse Germany's, depends on cheap energy and raw materials, quite a bit of which is sourced from Russia.

        It's basically like you decidi

    • I guess congratulations are in order to the US hawks. They've finally reached so many of their goals. Weakening Europe so it's again a satellite and not a potential competitor, avoiding (for the time being) that the Euro replaces the Dollar as an international exchange currency, and dividing Russia and Europe, as has been doctrine for almost a century.

      Err...I kinda think that Russia starting an unprovoked war with Ukraine had at least a "teeny" bit to do with dividing themselves off from Europe and the res

      • Re: (Score:2)

        by Tom ( 822 )

        Err...I kinda think that Russia starting an unprovoked war with Ukraine had at least a "teeny" bit to do with dividing themselves off from Europe and the rest of the world.

        Oh, totally. That's the opportunity I was talking about.

    • I guess congratulations are in order to the US hawks. They've finally reached so many of their goals. Weakening Europe so it's again a satellite and not a potential competitor,

      Do you have a citation for any American ever that had that goal? It's not a very often expressed opinion in America. Milton Friedman said trade deficits are great.

      • Re: (Score:2)

        by Tom ( 822 )

        Not a direct citation, but the fact that the US a) spies on EU political leaders, b) is actively engaged in industrial espionage against european competitors and c) is pressing for sanctions against Russia that massively damage the EU economy but have little impact on the US economy IMHO is a clear sign.

        • a) spies on EU political leaders, b) is actively engaged in industrial espionage against european competitors

          Every country does this. It doesn't mean anything.

          c) is pressing for sanctions against Russia that massively damage the EU economy but have little impact on the US economy

          There is no way to avoid this, if you want meaningful sanctions against Russia.

          There is no American who wants to weaken Europe as a potential competitor. We don't see Europe as a competitor, we see them as trading partners (although a few times when they started world wars, we saw them as dumb shits, but they felt the same when we invaded Iraq. So there's enough stupidity to go around).

          • Re: (Score:2)

            by Tom ( 822 )

            There is no American who wants to weaken Europe as a potential competitor. We don't see Europe as a competitor, we see them as trading partners

            These two are not mutually exclusive. On the contrary. The US exports a lot of digital goods to Europe, such as movies, Facebook, etc. - you wouldn't want a european competitor to take that cake, right?

  • -covid slowed the EU economy, putting it on a different curve.
    -russian war leads to EU buying more arms from US.
    -russian war leads to EU buying more LNG from US.

  • What's actually happened in the last year is that the US dollar has strengthened against pretty much everything, to the tune of 10%-15% in most cases.

    This story should be more about the USD getting stronger rather than the Euro getting weaker. I haven't cherry-picked the currency conversions below, if you know of a currency that has strengthened against the dollar in the last year I'd be interested to hear about it.

    From one year ago until now:

    USD - Euro
    0.84 > 0.99

    USD - Chinese Yuan
    6.47 > 6.72

    USD - Yen

    • USD - RUB went from 0.017 to 0.013

      Maybe because it's probably pretty hard to buy a bunch of Rubles right now because no one wants to facilitate the transaction? I really don't know. But "strength of a currency" probably doesn't mean everything that people think it means.

  • ... surely we red blooded Americans can trash our currency and economy harder than those anemic Euros, right?? Are you going to take this lying down?

    C'mon boys! We've got more virtue to signal! What other messy commodities (besides oil) did we outsource production of abroad, that we can now dramatically refuse to buy?

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