Forget the French and Germans’ lack of participation in the conflict in Iraq. Americans living in Europe might be boycotting French wines and German cuckoo clocks for another reason these days: an ever-worsening exchange rate.
The dollar and the euro have been moving farther apart recently. That’s not good news for Americans in Europe who spend a lot of time buying things off base.
So purchases in countries more supportive of U.S. actions — from Ferraris in Italy to sangria in Spain — have become caro (expensive in English) as well.
In recent days, Community Bank, which serves the majority of Americans stationed in Europe from offices in countries such as Germany and England, has been giving customers fewer euros for their dollars than ever before.
The rate listed for Thursday was .8473 euros per dollar. That’s almost 30 cents less than the exchange rate the bank was offering at the end of February 2002 (1.1261 euros per dollar). That last rate was offered just two months after the currency was officially introduced around Europe and was a bit better than the 1.1052 rate on Jan. 2, the first official day of trading.
The trend isn’t likely to change for a while, according to one prominent currency analyst in Europe.
Michael Lewis, director of foreign exchange strategy for Deutsche Bank, said research that the bank has conducted indicates the dollar may keep falling through 2005.
Historically, a yearly plunge of about 30 percent in the rate is often followed by another year with a drop of about half that, followed by smaller drops until the rate bottoms out, he said.
“That sounds like a lot. But historically, it isn’t that severe,” he said in a telephone interview from his office in London.
Those working in the city of Big Ben and elsewhere across England have also been affected by the exchange rate, because the pound has stayed relatively close to the dollar, gaining just a few percentage points.
“The sterling, like the dollar, has suffered tremendously at the hands of the euro,” Lewis said.
But it’s not because the British have been America’s most supportive ally in Iraq.
Lewis said the fall of the dollar is due more to troubles in the U.S. economy than the strengths posed by those in Europe. He cites several factors that have contributed to the dollar’s weakness: low interest rates in the States, a large trade deficit and a general attitude that the country’s “new economy” isn’t doing as well as expected.
Those factors combine to make the country less attractive to foreign investors.
A weaker dollar is actually good news for industry in the United States, because American goods are cheaper abroad. So there might not be any push by the federal government to prop up the currency, when one of the top worries in the States is large employers shedding jobs.
In the meantime, those living or traveling in Europe are getting less for their buck. That also holds true of the government, which is forced to pay higher amounts to personnel to compensate for the worsening exchange rate.
It also has to make up the difference between fiscal year budget lines — set under better conditions — established to pay for contracts with local employees and businesses that are paid in euros.
