Stock Market Today : May 21 - 25 - Page 4
The value of the euro is another thing I've been wondering about, specifically the EURUSD.
As I understand it the value of the euro to the dollar is unlikely to reach a 1:1 relationship as long as central bank rates are what they are.
This is due to swap rates, i.e. you get paid / have to pay the rent differential for holding a currency overnight. With rates the way they are you get paid for holding long euro and have to pay for holding the dollar long.
This should mean that EURUSD won't reach parity until rates change or people panic and really think the euro will cease to exist, and I don't think we're quite there yet.
Is there any way of figuring out the lowest the euro is likely to go based on current rates?
The ECB on the other hand are unlikely to want to lower the rates very much since that would make euro denominated bonds less appealing, which would mean higher rates on them. This is the last thing the European governments want at the moment.
This will make it harder for any European easing to be done, which basically is bad news for the European economy. And since we're all global it could also mean bad news for the US economy.
Am I correct in the above assumptions or have I missed something? And if I'm right shouldn't it break the EURUSD / stockmarket correlation to some extent, at least for the European markets?
Euro won't reach 1:1 because of the awesome inflation that would cause. You can buy a car in Germany for 20k euros that would cost 30k dollars in the US. 1:1 = either inflation in Europe or everyone moves to Europe which would indirectly cost inflation due to demand = inflation in Europe
Inflation = depression
Depression = world economy goes bye bye
world economy goes bye bye = well i dunno. i can't explain it but this image can