Cry Wolf: the Euro is too strong

In 2014, some companies blamed the high exchange rate of Euro to the US dollar for their low profits. But this is an excuse to cover up bad management. Let’s me explain.

When the Euro was fixed in 1999, the exchange rate was approx USD 1,18. In 2001 the Euro had a value of USD 0,82. The low value of the Euro made European products cheap and companies could sell their products easily in the US. In July 2008, European importers were happy: the Euro has appreciated to USD 1,59 and US products were cheap. Many economic experts predicted an appreciation to USD 2. However the Euro crashed: in only 8 weeks the value dipped to USD 1,25 in October 2008. In September 2014, the value of the Euro has depreciated from USD 1,38 to approx USD 1,26.

Financial markets have short time memories. And the currency market seems to have no memory at all. The EUR/USD value is unpredictable and market participants are driven by sentiment. The only sensible prediction is that the exchange rate will change. To blame the high Euro is to cry wolf.