Declining exchange rate of Euro good for export

Since the summer of 2014 the Euro has slowly become worth less in dollars. There were two revivals, in July and October, but the trend is clearly downward. Yesterday morning a Euro was worth 1.19 dollars and the exchange was still in the red.


Euro-dollar exchange rate in 2014. View the current exchange rate at wisselkoers.nl.

The cause of the decreasing rate is the increasing popularity of the American dollar. The American economy is recovering more quickly than that of Europe and the expectations is that the interest in the US will rise. Whereas the unemployment in the US is decreasing, that of Europe is still increasing. This makes the dollar more attractive for currency traders. In Europe there is also the problem that the economic growth is low. A Euro sceptic party is also threatening to become the largest in Greece after new elections. Although the situation for the Euro is less risky than during the Euro crisis, this is bringing down the atmosphere on the stock market. Germany also indicated that the Eurozone would not be in danger if Greece leaves the Euro.

However, the decreasing Euro exchange rate also has positive consequences. The export from the Eurozone is more attractive, as these products are relatively cheaper for countries outside of the Euro. The CPB adjust the growth expectation for this year up: from 1.25% to 1.5% growth. The cause of this, besides increasing export, is also the increasing consumption due to the decreasing energy prices.

The flip side of this is that the import from the Euro countries without the currency union is more expensive, just like travelling outside of the Eurozone. But more expensive import products could be positive for European producers. This could mean that the inflation in the Eurozone will increase, which would not necessarily be bad due to the low inflation in recent months. The European Central Bank is aiming for around 2% inflation. This figure was at 0.3% in November.

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