What's going on?
The value of the euro – currency of 19 European Union countries, plus a few tiddlers – has slid versus the US dollar in recent weeks, languishing near two-year lows on Friday before improving slightly on Monday.
What does this mean?
The eurozone economy hasn’t exactly been a picture of health lately: it grew just 0.2% in each of the third and fourth quarters of 2018, the slowest in four years. Now, a senior figure at the European Central Bank (ECB) says he thinks the slowdown is even worse than previously thought, and that the ECB’s considering another round of the cheap, long-term loans it last made to European banks in 2016. These would inject some cash into eurozone economies, potentially encouraging banks to lend and people to spend more.
Why should I care?
For markets: Investors look to greener currencies pastures.
ECB loans would enable eurozone banks to lend money more cheaply. That could be good news for companies and consumers, but not so much for euro investors seeking returns. With ECB loans potentially on the horizon in 2019 but improved economic growth and interest rate hikes looking increasingly unlikely, investors are taking their euros and selling them to buy other currencies that might offer more bang – like US bucks. Interest rate hikes have been pushed back in the US, too, but at least its economy’s slightly hotter – and a trade deal with China could be in the offing…
The bigger picture: Germany’s driving its best.
Europe’s biggest economy is reliant on its gigantic autos sector – one in five cars worldwide is made from German parts. Last quarter, the German economy didn’t grow at all, with a weak autos sector partly to blame. And it could get worse: if the US imposes threatened tariffs of 25%, the value of German car exports to the States could fall by nearly $20 billion – money which would be sorely missed in the eurozone (tweet this).