It just might be time to book that vacation in Paris you’ve been thinking about. That is one practical conclusion to draw from a remarkable set of shifts in global currencies that started in the second half of last year and has continued in the early trading days of 2015. The seemingly inexorable rise of the dollar versus the euro and most other currencies has broad implications for the global economy this year and beyond. The euro traded below $1.19 at times on Monday, the lowest level in nine years (it was $1.39 as recently as May). The dollar index, which tracks the dollar against six other major alternatives, is up almost 15 percent since June 30. Those swings are big enough to reshape the terms of economic interaction among the most powerful nations on earth — and will affect almost any company or individual doing business across national borders. The underlying causes are straightforward enough. The United States economy is doing far better than most other advanced countries, achieving a recently revised 5 percent G.D.P. growth in the third quarter. The Federal Reserve is planning to raise interest rates this year, at a time its counterparts in Europe and Japan are pushing toward easier money. But the consequences are quite a bit more varied, some straight from Econ 101 and others unique to the current circumstances. Trouble for U.S. exporters ? For American companies that compete globally and derive much of their income from overseas, things have gotten a lot tougher in the last few months. If you are United States-based Boeing competing with European Airbus to sell jumbo jets around the world, or a California winemaker trying to persuade global buyers your product is better than its French and Italian counterparts, your competitiveness has fallen. Firms that must pay workers and buy raw materials in now-depreciated currencies like the euro and yen are effectively getting cost savings even without having to cut pay or renegotiate with suppliers. That said, because the currency appreciation has its roots in an improving domestic economy, American manufacturers are hardly panicking. We’ve heard little complaining — so far at least — from business interests complaining that other countries are engaging in currency wars.
Posted on: Tue, 06 Jan 2015 06:57:13 +0000