The euro reached its lowest level against the dollar in seven months last week dropping from a valueof $1.311 a month ago to $1.255 on Friday. This was the lowest level since last October. Undoubtedly there are a confluence of factors at work here: yesterday’s French growth numbers, longer term stagnant growth in Germany and Italy, Sunday’s elections in the Federal Republic, the up and coming referendum in France, rumourology about forthcoming ECB rate cuts etc.
This downward pressure will in reality be welcomed in many quarters, since it could give some useful relief to hard pressed exporters, and it may help those (eg Spain) with serious balance of payments problems by offering some kind of corrective impetus.
But all of this only draws attention to one underlying fundamental of the situation: there has never been a ‘strong euro story’, it has always been a ‘weak dollar’ one. And it is here that things get really complicated, since it begs the question of whether the US is able and ready to live once more with a ‘strong dollar’, and if it isn’t then this immediately poses the question as to what exactly the repercussions will be?