DARMSTADT, Germany — Servicemembers’ cost of living allowance dropped 16 percent in February because of the dollar’s recent gain against the euro.
Exchange rates show that the dollar has been gradually improving since the beginning of the New Year.
On Wednesday, $1 bought 0.762721 euro cents, according to live online market rates. The 12-country euro bought $1.3105 in Wednesday morning European trading, its lowest level for more than a week and down from $1.3183 in New York late Tuesday, according to an article on Forbes.com.
The decrease in COLA is the first after boosts in November and December. The euro soared from costing about $1.20 in September to an all-time high of $1.3667 at the end of December.
Military finance officials were not available for comment Wednesday. However, the 266th Finance Command issued a statement Tuesday explaining that the Department of Defense Per Diem Committee, which handles COLA rates, decided to drop the rates in February.
The Per Diem Committee generally adjusts COLA whenever there is a cumulative upward or downward movement of 5 percent or more in a currency exchange rate. COLA can change frequently during periods of wide exchange rate fluctuations. More typically, many weeks might pass before exchange rates have moved sufficiently to affect COLA.
Bloomberg reported that the dollar rose the most in three weeks against the euro on speculation that Federal Reserve Chairman Alan Greenspan would signal higher U.S. interest rates and after a European Union report showed stagnant euro-region growth.
According to the 266th Finance Command Web site, the official average exchange rate for January was 0.7604 for $1 and 0.7670 for $1 in February.
On Wednesday, the exchange rate at Community Bank, which services overseas military communities, was .7412 for $1, according to the bank’s telephone recording. Off-post at the German Commerzbank in Darmstadt, $1 bought 78 euro cents Wednesday. Community bank officials were unavailable for comment Wednesday.
“If this trend continues, servicemembers can expect an increase in their COLA when the downward movement in the exchange rate reaches the 5 percent threshold,” read a statement issued by the 244th Finance Command.
Forbes said the euro strength late last year was powered by concerns over the U.S. budget and trade deficits.
The dollar has since regained some ground, but Forbes reported that those worries remain and analysts think the recovery could be temporary.
COLA is intended to partially compensate troops stationed overseas when the cost of obtaining goods and services locally exceeds the cost of obtaining similar goods and services stateside.
