In the past year, a pair of trends have led to a dramatic reversal of positions in the global currency market. The ongoing American economic recovery from the Great Recession, buoyed further by a crash in oil prices has resulted in the surge of the dollar, while the Euro has tumbled in the face of continued economic struggles and the recent decision by the European Central Bank to finally open the taps of quantitative easing.
Much of the talk lately has been centered around how this is a good thing for America, but there is a dark side to having a weak Euro and a strong dollar. Here’s what we think the negative effects will be for us here in the USA…
Europe has gained an export advantage over American manufacturers
While the falling Euro understandably has impacted the pride of those residing in the Eurozone, a major benefit of the recent policy of quantitative easing by the European Central Bank is that exports by manufacturers in the region have suddenly become more attractive to overseas buyers.
The other side of this is that the strengthening dollar has made American-made products more expensive on the global market, which may lead to a decline in orders over the coming year as importers look for better deals in other corners of the world.
Some companies are moving operations to Eastern European nations to save on costs
The aforementioned trend has led some companies to consider moving part or all of their operations from America to nations in Eastern Europe to save on costs. Not only will the weaker Euro benefit these businesses from the outset, but the cost of living on the ground in many parts of the east hover around about $1000 per month, providing them with significant cost savings on labor.
This Euro outsourcing trend will only further distress the American manufacturing sector however, which has seen steady declines in employment over the past two decades, and with the increase in the value of the dollar, it shows no signs of abating anytime soon.
American tourist attractions have become significantly more expensive for Europeans
With summer around the corner, the rise of the American dollar is bad news for tourism operators from Washington State to Washington DC, as the price tag on these attractions has soared as dollar has risen and the Euro has sunk.
Breathtaking peaks and shopping expeditions in places like New York City are no longer the stunning deal that they were during the depths of the Great Recession. While some of this negative fallout is expected to be softened by increasing domestic demand, the rapid fall of the Euro amid easing measures have those in the hospitality and tour business bracing for impact.