Amid the current economic crisis, a bright spot exists for Americans living in or traveling to Europe.
As you’ve probably noticed, the dollar has been gaining strength against the euro, and it has been for the past three months. Particularly in recent weeks, the greenback has made a comeback.
Purchases in the 15 countries that use the euro have gotten cheaper for those paid in U.S. greenbacks.
But why has the dollar been gaining strength even though America is in the middle of an economic crisis?
"The dollar has been on a stronger footing in recent weeks as evidence of economic weakness elsewhere in the world has accumulated," according to UBS Investment Research’s global economic scorecard dated Oct. 9.
Several economists are forecasting that the dollar will continue to strengthen versus the euro.
The UBS scorecard calls for a stronger dollar in regard to its exchange rate momentum with other currencies, and the report also states that the dollar looks undervalued versus the euro.
In the past few days, the dollar has lost some of the value it gained on the euro but that looks to be a temporary setback. The dollar should resume its rally against the euro in a matter of days, according to an Oct. 13 report from Stephen Jen, head of global currency research at Morgan Stanley in London.
"The reactions from the European governments have been more pro-active than I had expected and, thus, more supportive of the Great Britain pound and euro than I had expected," according to Jen’s report. "But this does not mean that their downtrend is over. I still believe that the euro is overvalued (Great Britain pound is less so)… A global recession will be more supportive for the U.S. dollar than for the euro."
One downside would be that as the dollar strengthens against the euro, U.S. servicemembers and civilians will receive a lower cost-of-living allowance as purchases "on the economy" become relatively cheaper.
Earlier this year, things looked bleak for the dollar compared to the euro. In April and then again in July, it cost $1.60 for one euro. By late August, $1.46 bought you one euro. The exchange rate had dropped to $1.40 by Sept. 10 and neared $1.50 by Sept. 23. Since that day, the rate has fallen rather steadily.
Jen predicts one euro will cost between $1.20 and $1.25 in 2009, according to his report.
On Tuesday, it cost $1.39 to buy one euro at Community Bank locations. Conversely, one dollar bought .7184 euro at Community Bank on Tuesday. On Wednesday, the Community bank rate got one euro for $1.40, or one dollar bought .7096 euro.
The euro dropped to a 16-month low on Friday, and the pound reached a five-year low of $1.6795 the same day. In July, a pound cost more than $2.
