Support our mission

The dollar on Friday made its biggest surge against the euro in almost eight years after the European Central Bank president predicted weak economic growth in the third quarter.

In its biggest rally since the euro debuted as real currency in 2002, the dollar gained 2.94 cents from noon Thursday to midday Friday, according to Federal Reserve Bank of New York data.

The dollar’s strength also was largely responsible for the nearly $5 drop in the price of oil Friday.

And its resurgence against the euro and British pound could drive cost-of-living allowances for troops and civilians lower.

For the two weeks ending Friday, the euro traded at an average of slightly more than $1.55, according to New York Fed data. By midday Friday, the euro traded at $1.5047, and later dropped below $1.50 for the first time since February.

The pound, meanwhile, dropped Friday to its lowest mark since November 2006.

On its own, Friday’s surge is unlikely to drive COLA rates — including post allowances — down.

But the dollar has gained more than 9 cents on the euro in less than a month, which could drive COLA rates lower.

"We do evaluate the impact of exchange rate changes on (cost-of-living) allowance rates at all locations worldwide on a biweekly basis.

"The impact on actual Post Allowance rates will vary, however, depending on where each surveyed location falls with regard to ‘local purchase points,’" according to the State Department’s Office of Allowance’s Web site. "As each location has unique surveyed living patterns and varying local costs, and the proportion of goods bought locally using local currency varies, when and by how much a change in exchange rate will impact COLA will also vary by location."

During the last two weeks of February and first two weeks of March — when the euro exchange rate was roughly the same as it is now — an E-6 with two dependents and eight years’ service stationed in almost any German locale would have received roughly $27.29 per day in COLA.

That same servicemember now gets about $32.11 per day.

If the euro rate holds steady, that troop could expect to lose roughly $145 a month in COLA, according to historical data posted on the Per Diem, Travel and Transportation Allowance Committee Web site.

The euro slumped to its six-month low after European Central Bank President Jean-Claude Trichet said European economic growth will be "particularly weak" through the third quarter, and the bank’s policymakers left a key interest rate unchanged Thursday, further indicating an economic slowdown.

The euro has ended lower against the dollar each of the last four trading weeks, according to exchange rate data.

"People in the market are pricing out any chance of European rate hikes,’’ Geoffrey Yu, a currency strategist for UBS AG in London, told Bloomberg News on Friday.

"The euro will be struggling to rebound.’’


Stripes in 7



around the web


Sign Up for Daily Headlines

Sign-up to receive a daily email of today’s top military news stories from Stars and Stripes and top news outlets from around the world.

Sign up