Rangga Kresna
Rangga Kresna

I am trying to be an economist who is able to improve global economic

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Will the Euro Become the Strongest Currency?

12 September 2017   09:22 Diperbarui: 12 September 2017   09:31 178 0 0

It is interesting to discuss the movement of Euro exchange rate against other currencies. The Euro has been strengthening since the first quarter 2017. In general, it is triggered by the improvement economic growth of Eurozone economy. Recently, the European Central Bank (ECB) president, Mario Draghi, has said that the revised economy growth forecast of 2017 is 2.2%, or increases by 0.3% from the previous forecast. In addition, the ECB remain running its quantitative easing (QE) program to encourage the economic growth. On average, the ECB buy bonds in the amount of 60 billion euros a month. The revision of economic growth forecast is believed to more strengthen the Euro exchange rate against other currency.

The stronger currency have advantage and disadvantage effects to the Eurozone economy. The advantage effect of the stronger currency is the imported good prices cheaper. For industries that use imported raw material can take higher profits because the costs of production are falling. Moreover, the prices of imported consumer goods are also cheaper, which is a benefit for the people who live in the Eurozone economy. As a result, the stronger currency may prevent the Eurozone economy from the imported inflation. Nevertheless, the stronger currency will lose the competitiveness of Eurozone economy in the international market.  The prices of productions and services made by the Eurozone economy will be more expensive than other products in international market.

The Eurozone economic growth is also believed to grow continuously. The Brexit is the cause of it. Since the United Kingdom has selected to leave the European Union (EU), many of big banks such as Standard Chartered, JP Morgan, Goldman Sachs, UBS, and many more will move their operation to mainland Europe. It is predicted the 9,000 jobs will move from Britain to mainland Europe as the consequence. The new job will lead to higher demand and push the economic growth to be higher than before. As a consequence, the Euro may keep strengthening against other top currencies in the next years.

To sum up, the Eurozone economy has to improve the efficiency in production and distribution of goods and services in order to keep its competitiveness in international market despite its currency continuously strengthening. By enhancing the efficiency, the costs of production may be declining, and the producer may choose to take a higher profit or to lower the sold prices to the customers without squeezing the profit. To prevent from exchange rate risk, it is advised to all businesses to hedge its international trades. It will give a certainty of income and expenditure to the businesses in setting up its financial plans.