The euro fell to its lowest level in well over a year against the dollar on Tuesday. At one stage it was as low as $1.1869, that was its weakest since mid May last year. The euro later recovered slightly to around $1.19. Just before the start of this year, the euro reached its strongest level ever against the dollar. Since then it is down 14% and foreign exchange experts are betting it will fall further.
This latest decline followed comments by European Central Bank governing council member Christian Noyer that there is nothing to stop euro zone countries ditching the euro though he said that would be “not without risks.” Even though nobody seriously expects any of the 12 euro users to quit, the markets reacted nervously.
However, it is much more a situation of the dollar being strong than the euro being weak. The predicted economic growth for the US this year is 3.6% compared with the euro zone’s 1.6%. Foreign exchange traders are reacting to expectations that US economic reports this week, including the employment figures for June, will be positive. In addition, all the signs are that the Federal Reserve will continue to steadily raise US interest rates while the euro zone central bank has held rates unchanged for two years. The dollar is also up against other currencies and this year it has gained 8.8% against the Japanese yen.