EUR/USD in the Second Half of the Calendar Year
July 27, 2012
A point made in this week’s Foreign Exchange Insights essay stipulates that a spontaneous depreciation of the euro is unlikely to happen spontaneously in sufficient size as to strengthen the competitiveness of Euroland’s regional economies greatly and thereby save the common currency from a rupture involving more members than just Greece. The euro would need to decline some 15-25% further against the dollar and do so in a pretty compressed interval of six months preferably and no more than a year. This note looks back at how the EUR/USD moved between June 30 and December 31 over its first thirteen years of existence.
That history is documented in the table below. In six of the years, the euro moved by less than 5.0%. In four other years, the EUR/USD recorded a net change in the second half exceeding 5% but falling short of 10%. There were just three instances when the move surpassed 10%. However, each of those cases involved a movement of less than 11.5%, and the largest of the three was an instance when the euro was appreciating. The euro in fact rose in more second halves than it declined.
| Second Half of | % Change of Euro versus $ |
| 1999 | -2.5% |
| 2000 | -1.2% |
| 2001 | 4.9% |
| 2002 | 5.8% |
| 2003 | 9.4% |
| 2004 | 11.4% |
| 2005 | -2.2% |
| 2006 | 3.1% |
| 2007 | 7.9% |
| 2008 | -11.2% |
| 2009 | 2.1% |
| 2010 | 9.4% |
| 2011 | -10.8% |
July is almost completely in the books. The euro at least moved in the direction that Professor Martin Feldstein believes it needs to go if Spain is to be saved, but the size so far of the currency’s decline has been merely 2.3%. Paradoxically, new investor hope over the past two sessions that the ECB will undertake drastic measures to ensure the survival of the common currency has led the euro to trim losses incurred earlier in July. This market reaction further demonstrates that a critical element of any comprehensive effort to end the debt and banking crisis must be an explicitly voiced intention to steer the euro lower.
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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