As Dollar Strengthens, U.S. Students in Europe Feel the Benefits
By Stephen Nellis
June 16, 2010
The recent surge in U.S. dollar strength could add another boost to the value of the euro, the euro equivalent to the dollar, according to the most recent quarterly report of IHS Global Insight, the premier foreign-exchange research firm.
The euro, like the dollar, has been in a long, drawn-out bout of recovery, bouncing back from a decade-long decline in the wake of the global financial crisis. Since the euro started to rise on June 9, the dollar has gained $1.34 against the euro to $1.3413, according to the latest report.
But the long-term effect on the euro and the european economy, which has been the main driver of the dollar’s recent performance, is more limited, according to the report.
“The euro has returned to the levels of 2007 or 2008” before the crisis struck, said John Taylor, senior emerging markets fellow at IHS Global Insight. Indeed, he said, it is currently about 4 percent or more of the euro’s value – compared with 16 percent of the dollar’s value, in 2011.
More important than the dollar’s recent strength, Taylor said, is its long-term momentum as a safe haven for the average person.
The euro has been rising for three years now, while the dollar has been rising for only 14 months. There is still more upside to ride, he said, adding that “the euro is no longer a safe haven for the average investor; it’s the long-term home of the average investor.”
And the fact that the euro has been rising much more slowly than the dollar is a good thing, Taylor said.
“The average investor doesn’t care how much it costs to buy a loaf of bread. But the average investor does care how much it costs the European economy to buy a loaf of bread,” he said.
He also predicted the euro could continue to rise much more slowly in the future, perhaps a decade or more.
The euro fell to its lowest level against the Japanese yen, the most commonly used Asian currency, in the 1990s after the Japanese government devalued its currency three