Sample Economics Paper on Projections of the U.S. dollar value relative to the Euro

Projections of the U.S. dollar value relative to the Euro

The US dollar has traditionally dominated the financial market, but with the global economic growth and stability, it is prone to a series of devaluations in the coming years relative to the Euro (Vadillo, 2015). The current economic status in the United States indicates a stagnated currency-growth. This decrease in value of the US Dollar may be attributed to a number of both financial and economical reasons in the current market. Personally, I would bet on the Euro to overtake the US dollar in the near term. Apart from the Euro, other currencies like the Yen don’t have the potential to challenge the dollar because their economies back at home are smaller compared to the U.S and their financial markets are less liquid and not very well-developed like New York (Morana, 2016).

According to currency experts, the US dollar index will experience its worst drop in a span of two years. This is attributed to the strong economic conditions in the Chinese and European economies which pause a stiff competition to the dominant US market (Jacob, 2016). The Euroland is almost as big as the United States, and the Euro has proved itself as a reliable store of value than the dollar. The Chinese currency appreciated to a 3.5 % against the US Dollar in January 2018, the largest gain recorded in the Chinese capital. Investment professionals have stated that, despite the US stimulus from tax cuts, economic growth levels in the United States still remains at par with Europe’s unstimulated but stable growth (Kühl, 2018). With such dominance of the Eurozone currency, it is clear that the Euro will inevitably overtake the US Dollar sooner than expected.

Dollar weakness is also being triggered by the massive global economic growth which has led to increase in the value of other traditionally weaker currencies (Wessels, 2011). The global reunion of the weaker currencies to counter the dollar will surely lead to its devaluation. President Donald Trump’s protectionist agenda that has seen the US leave the Trans-Pacific Partnership may also work against the dollar. Trump’s recent move to increase import tariffs has not been received positively in the market. This can easily lead to price wars with other economic superpowers like China which will negatively affect the strength of the dollar. Therefore, Euro will continue gaining momentum against the US dollar in the current market and is expected to predominantly outdo the dollar in the third and fourth quarters of this financial year.

Beneficiaries of the US Dollar depreciation

European exporters; who will become more competitive in terms of financial muscle compared to their US counterparts.

Foreign investors in the United States will get more opportunities and financial stability.

European firms based in the United States will acquire global dominance and superiority in the world market.

Tourists from Europe to the United States will have more value outside than in their own local country.

Losers of the US Dollar depreciation

Foreign workers from the United States working in Europe will experience a relatively expensive stay in the foreign country compared to their homeland.

US-based firms exporting to Europe will value their products relatively cheaper than their initial value in the home market.

Foreign tourists from the United States to Europe will find it more expensive to spend outside their own country.

 

 

 

References

Azar, S. (2013). US Stocks and the US Dollar. International Journal of Financial Research, 4(4).

Jacob, W. (2016). The Dollar Trap: How the US Dollar Tightened Its Grip on Global Finance. SDMIMD Journal Of Management, 7(2), 59. http://dx.doi.org/10.18311/sdmimd/2016/8432

Kühl, M. (2018). Excess comovements between the euro/US dollar and pound sterling/US dollar exchange rates. Applied Economics, pp.1-22.

Morana, C. (2016). The US Dollar/Euro Exchange Rate: Structural Modeling and Forecasting During the Recent Financial Crises. Journal of Forecasting, 36(8), pp.919-935.

Vadillo, F. (2015). On the Historical Exchange Rates Euro/US Dollar. Computational Economics, 48(3), 463-472. http://dx.doi.org/10.1007/s10614-015-9533-4

Wessels, G. M. (January 01, 2011). Is the reign of the US dollar coming to an end?. Studies in Economics and Econometrics, 35, 1, 79-94.