Americans may soon find huge value in traveling to Ireland as the dollar is expected to match the euro in value, say experts.
The euro has been steadily declining against the US dollar in the last year; yesterday it reached its lowest point in nine years, with a value of €1 to $1.19. Analysts at Goldman Sachs predict that the currencies will achieve parity by 2017.“By 2017, the euro will hit parity for the first time since 2002, the year it entered circulation as a physical currency,” the Wall Street Journal wrote.
This would be welcome news to Americans looking to visit, purchase property, or do business in Ireland, but not so welcome news to the Irish, who have for years enjoyed a favorable exchange rate against the US dollar.
The euro first fell 1.2% against the dollar to $1.1864, the lowest level since March of 2006, but then slightly recovered to $1.19370.
One of the reasons for this has to do with the current political turmoil in Greece; the far-left Syriza party is leading in the polls right now, which could result in Greece leaving the eurozone (the group of 19 countries that use the currency).
Additionally, as Europe's economy has been struggling to recover from the global recession, European Central Bank president Mario Draghi has stated that deflation is a serious threat to the eurozone, and that the ECB needs to be prepared to counter it.
There is talk of the ECB introducing quantitative easing (QE) to stimulate the eurozone’s economy, which essentially injects money into the banking system through bonds. In QE, central banks buy financial assets from commercial banks and other private institutions, which raises the prices of those financial assets and lowers their yield while increasing the monetary base.
However, the political situation in Greece could persuade the ECB to hold off on making any decision until after the Greek election. An article in the German magazine Der Spiegel said that Germany could allow Greece to drop out of the currency union, and that it would be manageable for the rest of the eurozone.
The U.S. Federal Reserve introduced quantitative easing in 2008, lowering interest rates to near zero and buying trillions of dollars of bonds and mortgages to boost the economy; the dollar has been growing stronger ever since, which is another reason for the euro’s decline.
The Federal Reserve is likely to raise interest rates in the coming months, which will make the dollar more alluring to investors, as it increases returns on assets denominated in the currency.