Blog: Dave LeggettGermany's euro gloom

Dave Leggett | 27 May 2003

Could the dollar be heading for 1.25 to the euro by the end of the year? That wouldn’t be a great scenario for the German carmakers who have grown used to enjoying large margins on cars shipped to the US. For all the talk of the problems facing the German economy and the danger of price deflation, the euro continues to appreciate versus the dollar because European interest rates – set by the European Central Bank in Brussels - are higher than those in the US. Germany’s apparent need for lower interest rates and some currency devaluation have to be balanced against the needs of the eurozone as a whole.

Companies can hedge, but hedging against adverse currency movements is a form of insurance – and the premiums cost. Next year could be bad for the German carmakers if they’re having to contend with a high euro and a still-depressed European (especially German) market. Another thought: if the dollar stays relatively low against the euro for the next five-ten years, maybe the Europeans’ import share of the US light vehicle market will be effectively capped. That scenario could also eventually see increased transplant investment in North America.


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