brown on green, A Regular column about finances

Going Down? Euro Versus Dollar

The euro has been dropping like a rock over the last several months. How low will it go? Opinions vary, but almost everyone believes the euro will continue to fall.

The euro began life January 1, 1999, as a virtual currency. The actual printing of currency and coins began January 1, 2002. It has become the second most widely circulated and reserve currency in the world. (The U.S. dollar remains number one.) The euro is the official currency of 19 of the 28 states in the European Union.

When the euro first began trading against the dollar, it was pretty much one to one, but the euro fell to around 80 cents on the dollar in the early 2000s before the central banks of Europe stepped in to support it. It soon returned to parity with the dollar, and since 2003, has been valued higher than the dollar, averaging in the $1.20 to $1.30 range from 2003-2006. In 2006, the euro began a climb that peaked at an all-time high, reaching $1.60 in 2008 before falling to around $1.25 in 2009. It traded at $1.25 to $1.55 from 2009 through the middle of 2014 but has since fallen to $1.08 in early March 2015.

Many economists believe the euro will fall to parity with the dollar before the end of 2015 and believe the slide will continue into 2016. Some even believe it will drop as low as 80 or 90 cents on the dollar before the slide is over. The reasons are many but mostly center around the fact that the U.S. economy is improving while the euro zone still continues to struggle. The recent decision by the European Central Bank (ECB) to begin buying European countries’ bonds is also a big factor.

The ECB is now embarking on the same path the U.S. Federal Reserve followed for a few years, with quantitative easing (QE). The U.S. has concluded QE and will begin to raise interest rates as unemployment falls. In Europe they are still trying to stimulate the economy.

The implications of the falling euro are good and bad. It is great news for missionaries in countries that use the euro. Truthfully, the dollar has been strengthening against all currencies and will help missionaries in other areas as well. It is also good news if you plan to visit Europe, as the American dollar will buy more European goods. It is good news for businesses exporting goods from the euro zone to the United States, because they will be able to receive stronger dollars when the goods are sold. It is bad news, however, for U.S. businesses that rely on exports to Europe.

Currencies tend to rebalance, but I hope our missionaries can use stronger dollars now to expand the Kingdom.

About the Writer: David Brown, CPA, became director of the Free Will Baptist Foundation in 2007. Send questions to David at david@nafwb.org. To learn how the Foundation can help you become a more effective giver, call 877-336-7575.