Monday, June 14, 2010

Will the Euro Hit Parity with the Dollar and the Loonie in 2010?

Crystal ball gazing is a tricky art. Especially when it comes to the volatile currency markets, which have had a bumpier ride this year than the stock market. As I write this, the euro is trading at $1.25 against the Canadian dollar and $1.21 against the American dollar. But people in the know think the exchange rate will go even further in North America's favor and will do so by the end of 2010.

A neighbor of mine (and good friend), who works as a currency trader here in New York City for a major European bank, told me that her company is basing its long-term strategies on the forecast that the dollar and the euro will be at parity by the end of 2010. She feels that there's no possible way that the Euro could strengthen, and will likely weaken, due to the ongoing financial crises on the continent.

She told me what she did off the record. But major economists are starting to come public with their predictions, and few are good for the Euro. The Brussels blog of the Wall Street Journal quotes Marie Diron, senior economist for Oxford Economics (it runs forecasts for Ernst and Young), as saying "We expect further depreciation with the euro going close to parity.” Chin Loo, senior economist for the bank BNP Parribas said on CNBC that she expects the euro to drop to 1.16 against the dollar very soon, further remarking that it could come close to parity by the end of the year.

Which is all great news for North American travelers. Not only will shopping, restaurants and attractions be much cheaper for us, with stronger dollars in hand, but the combined weakness of the currency and drop-off in business travel (a trend we've seen in Ireland and Greece recently) could mean unusually low hotel rates.

Obviously, there's no way to predict 100% that this parity will come to pass. But since I'm a betting gal, I'm currently pricing airfares for a fall trip across the pond.

(Photo from Creative Commons)

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