How low will the euro go when Greece defaults?
Posted on 12 September 2011 with 9 comments from readers
With the euro falling from $1.43 to $1.35 over the past few weeks as the crisis over the Greek sovereign debt reaches its inevitable conclusion of default, it is only reasonable to ask how low can the euro go?
Some people forget that the euro used trade at less than dollar parity a decade ago and the $1 euro is not unthinkable again with the eurozone economy the slowest moving economic bloc after Japan which is already in recession.
Sell your euros
In a major financial crisis centred on the eurozone the euro will lose its value very quickly. ArabianMoney would advise readers who hold euros to switch out of them immediately and buy US dollars or gold.
It is of course not always that easy to shift out of euro-denominated assets but that is what should be done, including shares. Get out before the panic rather than becoming a part of it.
The euro will take many other currencies down with it like the UK pound. Even the Canadian and Australian dollar are weakening.
Naturally a strong dollar is the last thing the US needs right now with its economy so weak and stalling after a very modest recovery. A higher dollar makes US exports more expensive and reduces the profits of US multinationals when they convert them back into dollars.
This is a foreign exchange crisis in the making. The European Central Bank will intervene to stem the fall of the euro but it hard to know at what point it will do so and at what point this will become effective.
Swiss franc
The Swiss franc will fall with the euro after the decision last week to peg to the euro. That could quickly prove a decision regretted and unhappily followed.
However, Greece is just the start. The wider debt problems of the eurozone are as transparent as you can imagine with Portugal, Ireland and Spain the next obvious candidates for disaster.
That will clearly take sometime and in the meantime the euro will go much lower and stay there. It will be a good time for Gulf residents who are paid in dollar-pegged currencies to visit Europe or buy a holiday home.
9 Comments posted by readers:
If the US dollar gets too strong, I wonder what the government will do to weaken it, so as to prevent it killing US exports, and thus increasing unemployment?
If unemployment gets too high, people will demand that something be done. My guess is that if it gets above 14%, social unrest will start. A very weak euro will KILL the US stock market. Every day the euro goes down against the US dollar, the Dow takes a hit, unless some other major factor influences the US market.
I think the best advise now is to buy GOLD as MUCH you can. The QE3 IS ON THE WAY NOW
Ed Note: This is the sort of comment that comes BEFORE a correction in the price!
Who knows how low the Euro will go?
But one thing is for sure, it’s going down, along with other fiat currencies. Although the Euro will sink faster than the others. My guess is that the Euro could easily hit parity with the USD.
interesting will be the gold/dollar battle as euro goes back to parity.
of course any loss by gold to the $ will be like a coiled spring with qe3 coming.
WHAT SHOULD BE IN QE-3!!!!
contrairement à toutes ces affirmations, ce n’est pas l’euro qui va baisser dans les mois a venir mais le $ et la £, en raison de la situation de l’économie américaine et britanique qui sont en pleine déconfiture. L’euroland va prendre les dispositions nécessaires pour sortir par le haut de la situation actuelle, ne jamais oublier que la Grèce ne représente que 1% de l’économie de la zone euro.
Tous ces articles sur les problèmes de l’euro ne sont que des contre-feux de la presse anglo-saxone , et n’ ont pour but que de faire diversion sur la situation réelle du $ et de la £. Pour de plus amples information veuillez consulter le site internet de LEAP 2020
Ed Note: You seem to think this is a media conspiracy – just add up the sovereign debts of Spain, Italy, Portugal, Ireland and yes Greece, that is the problem for the eurozone… we don’t make this up!
@ Roudiere:
A very small fraction of the readers on this web site can read French.
You are correct when you say Greece represents an insignificant portion of the Eurozone economy; but that is NOT the problem.
But based on what French I know, and based on the Editor’s note, you would be wise to study the facts about the PIIGS countries; specifically their economies, the MASSIVE (and growing!) sovereign debts that they all have, the fact that their debts are growing rapidly, the significant social problems within these PIIGS countries (e.g. very high unemployment in Spain, very high tax evasion in Greece, etc.).
So the real problem is twofold:
1. The aggregated debts of the Eurozone, and
2. The “domino” effect that will be created when Greece defaults.
Check the facts.
For those selling Gold in what are they investing the proceeds?
Bill near Slidell,
You’re wondering how could the US government prevent the US dollar from rising.
How does $447 Billion in new stimulus sound?