Would The Euro Be Worth 80 US cents In The Future?

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Euro - European Central Bank
FRANKFURT AM MAIN, GERMANY - MAY 14, 2014: Euro sign in front of the European Central Bank (Europaeische Zentral Bank)
Euro - European Central Bank
FRANKFURT AM MAIN, GERMANY – MAY 14, 2014: Euro sign in front of the European Central Bank (Europaeische Zentral Bank)

It appears that the Euro is on a downward spiral and nothing will prevent further erosion. May be it’s a good time for Americans to start vacationing in Europe now that the euro has gotten much cheaper. It’s expected to get much cheaper, thanks to the recent noises of the US Federal reserve. Whenever a central bank increases interest rates, the value of that central bank’s money tends to go up, especially when other central banks are cutting their interest rates.

Now that the European Central Bank has undergone a 1.1 trillion euro quantitative easing physical stimulus, it appears that any comparison with the US dollar is a blow up. It’s a no brainer. Investor funds will flow towards the US dollar at the expense of the European euro. The only question that remains to be asked is how long the euro will remain depressed and how low will it get. These are two interrelated questions and sadly, thanks to the market dynamics regarding the European shared currency, the conditions on the ground don’t indicate any fundamental differences any time soon. Things are so bad that Goldman Sachs has forecasted the euro to erode so much that €1 would be worth US $1 come September. Considering how the euro is crashing, this might be too optimistic. In fact, expect the euro to hit $1 sooner. The real question to ask is how much cheaper the euro would be compared to the US dollar.

While a lot of Americans are thinking that this might mean cheaper Prada bags and Louis Vuitton items, the reality is that luxury goods’ pricing tend to be adjusted up to reflect currency fluctuations. The reason for this is luxury brands want to protect their market positioning by increasing their prices. The moment they get perceived as a bargain they lose their luxury status. Don’t expect cheaper luxury items from Europe any time soon. Instead, the key focus here should be in the technology space. European technology players like SAP become more attractive compared to Oracle and Microsoft.

1 COMMENT

  1. The E U is made up of social engineers trying to create a United States of Europe. In my opinion it is doomed to failure and within the foreseeable future the Euro will collapse along with the E U itself. It was foolish to think all of Europe with it’s different economies, different pension plans, different economies and different cultures could all be united under one roof by a bunch of self serving bureaucrats not elected by the people. The last gasp of a grand socialist scheme. The writing is on the wall with protesters hitting the streets in what used to be a Europe of calm. When governments push the people too far the revolts are sure to follow.

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