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The falling value of the euro is strengthening exports and attracting foreign investment in Europe.
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The falling value of the euro is strengthening exports and attracting foreign investment in Europe. If it brings real economic recovery, the result will be growth.
On 4th January 2014, the euro stood at $1.39 and it has been falling ever since. Since then the euro never recovered. Yesterday, it stood at $1.1502, a drop of over 17.3%.
The strengthening of the dollar (or the weakening of the euro) is a sign of investors' belief that the US economy will continue to grow as will the rate of employment. Consequently, the US economy has been doing well since 2014 compared with Europe. In 2015, the Federal Reserve began to increase interest rates long before the European Central Bank (ECB) does. Investors would see a rise in the demand for dollars through the increased profitability of variable-yield securities and fixed-interest securities in the US.
Analysts are anticipating that the United States will begin to raise interest rates. The eurozone, on the other hand, is enjoying very low interest rates, and will continue to do so for some time to come. This means that interest on bonds denominated in euros will be less attractive than that on bonds denominated in dollars. As things stand, the euro is devalued.
The ECB will continue to adopt an expansive monetary policy or quantitative easing that will see the euro continue to depreciate, which may help economic growth and boost employment. This could also prompt a rise in prices, which would chase away the specter of deflation.
