I don't understand monies.
November 9, 2011 12:49 PM Subscribe
Forex filter: Why is the Euro still worth more than the US dollar?
posted by the foreground to Work & Money (11 answers total) 4 users marked this as a favorite
Can someone explain to me in (somewhat) layman's terms why despite all the ongoing bailout drama affecting Greece and possibly spilling into Italy, along with the previous problems in Ireland, Portugal and Spain...along with some countries in the Euro-zone having unemployment as high as the mid-teens, overall GDP growth predicted to be 0 at best next year, but more likely in recessionary territory, a dysfunctional political union incapable of acting with one policy voice etc etc....Why is it that the Euro is still valued well above the US dollar and even when I see forecasts for as much as a year out in the future, no analyst seems to dare predict that the Euro would bottom out at less than $1.20?
I understand the US isn't doing "great" either, but comparatively, when you stack up things like GDP growth rates, unemployment, fiscal and monetary policy capabilities, the US seems to be clearly doing better overall, or at least to be "ahead" of the Euro Zone in these areas. I mean, my basic question is that how can a currency whose very viability is in serious doubt (according to some influential economists) still be so highly valued? You can throw in the British pound too.
I realize I must be misunderstanding some aspect of the relationship between currency and the underlying economy, but I'm not sure what. Is it that the currency is not meant to be an exact proxy for economic or industrial strength? Are speculative forces distorting the markets? Something else?
Bonus question: Can you recommend a good, readable primer on understanding the currency markets, Central Banks and previous currency crises and their underlying causes? Thanks!