Link to Profile Semperoper, Dresden Sieg (auf dem Siegesäule), Berlin Brandenburg Tor, Berlin Skyline, Frankfurt am Main

Saturday, April 01, 2006

Quo Vadis, US Dollar ?

I had a somewhat industrious recruiter from the US contact me yesterday ... industrious since he actually bothered to contact me despite knowing that I am in Germany, but not so industrious that he was on top of the USD/EUR FX situation ... so in trying to nail down how much it might cost his client to hire me, he asks, "X Euros, is that more or less than Y Dollars?" And the numbers he quoted put the Euro to Dollar FX rate at about 0.90 USD/EUR, versus the actual rate of about 1.20 USD/EUR (for those of you who hear it quoted on AFN, that would be 1.11 EUR/USD versus the actual 0.83 EUR/USD).

I pondered the question for a moment, not for a lack of data, but for what I would be signalling with a correct answer, which would be that I might be roughly 33% more expensive for his client than he thought.

It reminded me of those lovely days of but 5 years ago, when the US dollar was somewhere around 80 cents to the Euro and when travelling to the US was roughly 33% more expensive than it is now. Despite that, clothing was still much cheaper in the US. Hotels, especially given the general standard of housekeeping in the US, were (and unfortunately still are) a total rip-off.

Meanwhile the general appreciation (some would say recovery) of the Euro has meant that if you owed any US Taxes due to things like the AMT, you have now become "richer" from the standpoint of the IRS and therefore found yourself paying even more AMT (until the recent change in Tax Code, which will allow you for 2005 to offset 100% of your US tax liability with foreign taxes paid versus the previous 90%)

But I digress, and on a subject that causes most people's eyes to glaze over, despite the huge importance this might have for their future well being ....

Which of course begs the larger question, where goes the US Dollar? For those of you gentle readers sitting on the Euro side of the Atlantic who have roots but little money back in the US, it is hard to cheer the rise of the Euro without feeling a little nagging guilt. It's even more difficult if you still have money tied up there in things like pensions, 401k's, IRA's, etc. as your net worth is sinking with the Dollar.

Sure the dollar has been bouncing between 1.15 and 1.22 (USD/EUR) lately, which seems like quite a reboud from the 1.30 of last year, but ask yourself where you really think the Dollar will be going given that gold has gone from around $420 per ounce to nearly $600 per ounce (it was recently at a 25-year high, but has come off that level to about $580 per ounce). And don't think that the climb of oil to a fairly steady level around $65 is purely symptomatic of things like hurricanes and increased Chinese demand for oil ... it largely is, but it also reflects a decline in the purchasing power of the dollars that oil is priced in.

So did the Dollar rebound when it went to 1.15, or did the Euro merely race it faster to the bottom while appearing to still have the edge because it was still above parity, and is the Dollar now regaining steam to the downside as economic growth slows to only 1.7%, a rate that some major Euro-zone countries would love to have.

Yeah ... fun stuff to ponder on a Saturday morning. Time to get a Bratwurst (that used to cost 2 Marks but now costs 2 Euros!).

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