Posted December 29, 2008
The euro turns 10 years old on 1/January/2009 and some project it may become the benchmark global currency within the next 5 years. The markets are experiencing very slow trading right now as investors wait for the New Year.
In 3 days, the euro turns 10 years old. The euro is a shared currency that was developed to increase the financial strength of the European community. Though it was expected to have a bigger impact than it has to date, there is general consensus that the shared currency is just now beginning to create the financial benefits it was meant to create for the countries adopting the euro as their currency. As of 1/January/2008 there will be 16 participating countries with the newest addition of Slovakia.
The euro has proven to be one of the most stable currencies in the world and the countries participating have not had to ask the International Monetary Fund (IMF) for assistance during the economic crisis. The goals established for developing the euro included lowering borrowing costs, increasing trade, and contributing to economic growth in and between participating countries. Some analysts are predicting the euro will become the benchmark global currency in the next 5 years against which other currencies will be paired as a measure of financial security. This means the euro would overtake the US currency.
Not everyone agrees with this prediction, but on the euro's birthday, there is no denying it has created a financial backbone for the European financial community. There are more countries anxious to join the euro zone, but there are certain conditions which must be met in order to qualify. These countries include the Czech Republic, Latvia, Lithuania and Estonia.
As far as currency markets go, trading is being called anaemic. Investors are in a continued wait-and-see mode right now as 2008 comes to an end. There is increasing concern the US recession is still on a steady slide downward with no end in sight. As a result, the dollar weakened against the euro to $1.4056 in terms of US dollars as of the end of day on 28/December/2008. This decline represents the fourth day of declines.
The US dollar also weakened against the yen ($.01102) for the same reasons it dropped against the euro. The US economic news continues to report a weakening economy with housing prices, factory production, and employment rates still dropping. The Federal Reserve is out of magic tricks too with interest already at 0%. US President-elect Barack Obama is talking about instituting an $850 billion public works stimulus package in addition to a middle class tax cut.
In other currency news, the UK pound weakened to 96.56 pence against the euro for many of the same reasons the US dollar is weakening. The recession is still growing strong in the United Kingdom with no end in sight yet.
The Australian dollar (US$.6867) rose against the US dollar for a couple of reasons. The Israeli attacks in the Gaza strip are causing the price of a barrel of crude oil to rise. In addition the price of gold, Australia's third highest export of raw materials, is rising. If the Middle East violence continues it is expected to cause an increase in the price of the euro and the Australian dollar.
The only other real currency news right now is the fall of the Russian ruble (R40.8143) to a record low against the euro. The declining oil prices have created economic havoc in a country with Russian draining its currency reserves trying to prop up the ruble.
So as the world wishes the euro "Happy 10th Birthday", it also looks with a wary eye at the global recession. It is going to be an interesting year in 2009.