Euro Down 20% Over U.S. Dollar, and Falling
Two of the most watched global currencies are the U.S. dollar and the euro. That’s because the U.S. is the world’s biggest economy and the eurozone is the world’s largest economic region. The health of these two currencies acts as a barometer of the overall health of the global economy.
As a result, the U.S. dollar and the euro are two of the most traded currencies around the world. Over the last number of months, strong economic data coming out of the U.S. and poor data coming out of the eurozone has seen the euro drop significantly against the U.S. dollar.
In July 2014, the Euro was trading at around $1.40 U.S.; that means it would cost US$1.40 to purchase a single euro. Times have changed; the euro is currently trading near $1.13 U.S. and could drop to as low as $0.90 in 2015.
Pressure Coming from Weak Economic Data…
The strength of the U.S. dollar and rapid decline of the euro is a result of their economic trajectories in 2015. Thanks to a stronger job market, the U.S. economy is projected to rise 3.6% in 2015, up from previous forecasts of 3.1%.
Yet despite an improving U.S. economy and lower oil prices, global economic growth remains downright weak. In 2015, the global economy is expected to grow 3.5%, down from October 2014 estimates of 3.8%.
More specifically, growth in the eurozone was cut from an anemic 1.3% to an even more anemic 1.2%. The International Monetary Fund (IMF) cut the growth of Germany, the region’s biggest economy, from 1.5% to 1.3% in 2015 and growth in 2016 from 1.8% to 1.5%.
France, the eurozone’s second-biggest economy, has seen its growth projections cut from 1.0% to 0.9% in 2015 and from 1.5% to 1.3% in 2016. Italy, the third-biggest economy in the eurozone, had its growth cut even further, from 0.9% to 0.4% in 2015 and from 1.3% to just 0.8% in 2016.
Greece, one of the most troubled nations in the eurozone, recently elected a far-left-leaning political party named the Syriza that’s against the austerity measures placed on Greece by the “troika:” the European Central Bank (ECB), the European Union (EU), and the IMF. As of this writing, Greece has the area’s highest unemployment rates (25.8%) and owes its international lenders €323 billion (176% of the country’s GDP).
Greece’s new leader, Prime Minister Alexis Tsipras, has said that Greece wants its debt reduced and its terms renegotiated. But Germany, the largest contributor from the EU, has rejected the idea of trimming Greece’s debt obligations of €56 billion.
Tsipras also said he plans to keep all his pre-election pledges: that includes promising to raise the minimum wage, pay a pension bonus, and rehire public workers. He also said that Greece would not be blackmailed by the EU, pulling out of the union entirely if need be.
Some believe the EU will collapse if Greece leaves or is forced out of the EU, while others maintain that because Greece contributes so little to the region’s GDP its leaving will have little impact. Either way, with funds expiring at the end of February, time is running out for Greece…and the uncertainty is wreaking havoc on the euro.
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“World Economic Outlook Update,” International Monetary Fund web site, January 19, 2015; https://www.imf.org/external/pubs/ft/weo/2015/update/01/pdf/0115.pdf.
“Greece’s Tsipras defiant over economic plans,” BBC web site, February 8, 2015; https://www.bbc.com/news/world-europe-31261475.