If you are keen in foreign exchange trading, then it might excite you to take note of a probable devaluation trend in Euro. This is going to have tremendous effects on us.
Based on purchasing power parity (PPP), Euro is now about 30% overvalued. PPP means that $1 would buy the same amount of goods and services in the U.S. as its rate in Euros would buy in Europe.
According to economists, when a currency gets between 25 and 30 percent overvalued, it tends to revert to the mean. In this case, it implies that Euro is very likely embarking on a downtrend.
Fundamentally speaking, the median forecast of a Bloomberg survey shows that the economic outlook for U.S. is brighter than that of Europe. As such, the greenback is poised to outperform Euro.
The strong Euro policy in the past few years has hurt the European exports and has been restraining its growth. It is about time for Euro to reflect the Europe's economic strength.
The weakening growth prospects are pressurising the ECB to lower its rate to spur on growth. This move is going to drive Euro further down.
The relative relationship in foreign exchange rate implies that when Euro weakens, the dollar strengthens.
A strong dollar is what the whole world needs most now. With the greenback gaining strength, the oil price would go on declining in the near term. The gold would be less attractive also.
This alone is exciting to all of us.
The picture showsthe ECB in Frankfurt, Germany. ECB is in charge of Eurozone's monetary policy.
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