Quote: Originally Posted by Logic 7
Ok toro, i admit, you know way better than me regarding economy, but honestly explain to me why EURO is still higher than american money??
This is an honest question.
That's a fair question, Logic.
First, the absolute value doesn't really mean anything. The fact that €1=$1.25 is somewhat meaningless in and of itself. For example, when looking at the dollar compared to the Japanese yen 40 years, $1 used to equal ¥10,000. Today $1=¥125. What matters isn't that the number of yen is greater than the dollar in conversion. What matters is that the yen has gotten progressively stronger against the dollar over time.
Currency values are a function of many things, beyond relative strengths in the economy. Over time - long periods of time, sometimes decades - the strength of a currency is directly related to the strength of the economy. But in the near term, currencies can fluctuate for a number of reasons. Such reasons include relative interest rates (higher interest rates will usually mean a higher currency), sentiment (investors might not "like" a particular country at any given time), central bank policies (central banks buy and sell currencies to manage currency levels for a variety of reasons), inflation (higher inflation means a lower currency), capital flows (such as investments in the oil sands from outside Canada), amongst others. But over the long run, currency valuations will reflect relative strength in the economy.
The reason why the euro had been rising against the dollar until last year - it has been in a trading range since the end of 2004 - is because the government of the United States instituted policies that were designed, whether on purpose or not, to devalue the currency. They ran large fiscal and trade deficits (which lowers your currency), and the Federal Reserve lowered its lending rate to an unheard of rate of 1% (which lowers your currency). But now those factors are reversing as the relative fiscal deficits are now better in the US than in Europe and interest rates are higher in the United States than in Europe.
Understand that I am not a blind ideological partisan. The day after the Republicans won the 2002 Congressional elections, I was in the market heavily buying gold stocks, so much so that I was the largest holder of gold stocks in the Southeast, or so I was told. (Not me personally, for my organization.) The massive tax cuts the Republicans were promising and delivered was going to drive up the price of gold and drive down the dollar, which is what happened. I bet against the dollar and it paid off.
I hope that helps.
kidding.