U.S. dollar strengthens against the euro

Scott Tong Dec 14, 2011

Steve Chiotakis: European negotiators are expected tomorrow to hold talks on a new treaty leaders agreed to last week, which would strengthen budgetary oversight to avert any future debt crisis. Meanwhile, there are fresh concerns that ratings agencies could downgrade the entire eurozone — which has the U.S. dollar today at an 11 month high against the euro.

Marketplace’s Scott Tong is with us live from Washington with the latest. Good morning Scott.

Scott Tong: Good morning, Steve.

Chiotakis: So what does a weak euro mean for the American economy?

Tong: Here’s the picture: One dollar U.S. today will buy you 76 euro cents; a year ago it bought just 69, so a buck buys more stuff. That means if you travel there you get more German hotel for your money, or Belgian chocolate, Chateau Lafite Rothchild — you know, whatever you’re buying.

That’s if you’re a buyer. Now, if you sell stuff, it of course works the other way around. You want a weaker currency if you’re an exporter.

I spoke this morning to Gabriel Stein, at the economic forecasting firm Lombard Street Research and he sees the shakeout this way:

Gabriel Stein: Obviously if the euro is weak and the dollar is strong, Airbus will do better than Boeing, for instance — all things being equal. German machine sales will do better than American.

Now he and others are quick to say that exchange rates are just a small piece of this world economic picture; jobs and growth — that stuff still matters, Steve.

Chiotakis: And even though we had — or have — all this European turmoil, Scott, the value of the euro had been hanging on. Why the drop now?

Tong: “Hanging on” against dollar, which had been weak as well. This is a worldwide, economic ugly contest — as we all know. But in Europe, more pessimism — shocking as that may sound — today. The questions include: Is Europe’s bailout fund big enough? Are the countries there really serious about ratifying last week’s rescue plan? The questions don’t go away.

Chiotakis: Marketplace’s Scott Tong in Washington. Scott, thanks.

Tong: You’re welcome.

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