When we first arrived in the KMC, we heard about a big grocery store just across the French border. We didn’t know what to expect. We heard we needed to bring French Francs with us because they didn’t take credit cards. We had to go to the bank on base and exchange US Dollars for French Francs. The bank had daily exchange rates for several different local currencies. We really didn’t have much experience dealing with foreign currency. Now it’s a bit easier as there’s only one currency to deal with: the Euro.
What is the Euro?
The Euro is the official currency of the Eurozone in 17 nations, including Germany, France, Luxembourg, Belgium and the Netherlands. It is the second most traded currency in the world after the U.S. Dollar. The Euro coins and banknotes went into circulation on January 1st, 2002. We were in San Antonio, Texas at the time. We left the year before with German Marks and came back in 2004 to a new currency. Everything seemed like it got more expensive after we came back to the KMC. We had to learn how to make the Euro currency sign.
How do you create the Euro currency sign?
The Euro currency sign (€) can be made with a capital C with an equal sign typed on top of it. On a Mac, you can type Shift+Option+2. On a Windows computer, you can type Alt+0128 on the numeric keypad. If I can’t remember these codes, I Google for the Euro and copy and paste it from any web page.
How does the Euro compare to the U.S. Dollar?
The Euro and U.S. Dollar exchange rate is quoted as a currency pair. The standard way Foreign Exchange (FOREX) traders quote it is with the Euro first: EURUSD. The currency markets are open 24 hours during the week. The price you see quoted at the bank is a snapshot price. In reality, the price changes constantly. Here’s a price chart of the EURUSD:
The price quoted is sometimes stated as how much Euro one U.S. Dollar will purchase. This is simply one divided by the EURUSD rate. For instance, if the EURUSD were at 1.40, the USDEUR would be 1 / 1.40 = 0.7143. As the EURUSD goes up, the U.S. Dollar buying power goes down. A higher EURUSD rate mans higher Cost of Living Overseas (COLA) payments, but everything off base gets more expensive in terms of U.S. Dollars. You can get a current quote at finance.yahoo.com
What affects the price of the EURUSD?
Many things affect the price of the Euro versus the U.S. Dollar. Investors and traders try to estimate the impact of interest rates, debt loads nations carry and economic outlooks for the United States and the Eurozone nations. The European Central Bank (ECB) guides the Euro decisions but traders and investors are the primary movers of the price of the currency pair.
What is the outlook for the EURUSD?
That’s a good question. The U.S. has big economic issues to solve but so does the Eurozone. Both have had deficit spending and accumulated too much debt. In Europe, the primary nations causing stress on the price of the Euro are the so-called PIIGS nations (Portugal, Ireland, Italy, Greece and Spain). There is a looming massive debt problem in Europe, just like in the United States. To me, it’s similar to two sick patients in the hospital. Investors are trying to determine who is sicker than the other patient.
Here’s a long-term chart of the EURUSD from a long term forecasting service:
Notice they are forecasting the EURUSD to drop near parity before the end of the year. That’s the good news. The bad news is they also expect it to rise near where it is today about one year from now. The longer-term forecast is in the $1.20 to $1.30 range.
Overall it is easier to have one currency. Many vendors accept U.S. credit cards and you’ll get a good exchange rate from your credit card company. Many small European stores still don’t accept U.S. credit cards so keep some cash with you when you travel. ATM’s will almost always work in my experience. It’s a good idea to have a MasterCard and a VISA card as sometimes one card won’t work and the other will.
Let’s hope the long term forecast is correct and the EURUSD declines in price. It’ll make everything off base much less expensive.
BTW: I tweet about the EURUSD and economic events that affect the EURUSD price at http://twitter.com/tomnunamaker