This Paris Life

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The US dollar rises to a nine year high against the euro

This week, the US dollar rose to a nine year high against the Euro. One euro is currently worth about $1.19, compared to a low of around $1.58 in April 2008. This time last year, the rate was $1.36 to the euro.

The reasons for these currency movements are both euro weakness and dollar strength.

Two factors contribute to euro weakness. First, it looks likely that the anti-austerity party in Greece will take over the government in the forthcoming election. If so, it has pledged to renegotiate the terms of Greece’s financial rescue program with the European Union and the International Monetary Fund. It may even exit the Eurozone altogether. Neither scenario is good news for the euro.

Added to this, the European Central Bank (ECB) is expected to announce a new program of quantitative easing (QE; bond-buying), which historically weakens a currency. Economic growth in the Eurozone was weak in 2014 and inflation remains very low, exacerbated by falling oil prices. These factors put heavy pressure on the ECB to implement QE.

By contrast, the US dollar has risen on the expectation that the Federal Reserve will raise interest rates. This could happen as early as mid-2015, making the U.S. the first of the G10 nations to do so. The Fed also announced in October 2014 that it would cease its QE program, taking the opposite line to that of the ECB.

All of these factors have combined to move the $US/euro rate to levels not seen since before the global financial crisis of 2007/08.

French property prices now look more affordable than for some years for foreign buyers wanting to fund a purchase with dollars. Those with long term plans to buy property in France would be well advised to reserve funds now in order to lock in the current exchange rate.

In addition, French interest rates remain at a historically low level for those considering a mortgage to purchase an apartment.

Photo Credit – ArcCan

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