There are many expats from the UK living in France it seems, a handful of Americans.
I was wondering what people know about the value of the Euro vs the British Pound vs. the American dollar. Any reputable web sources on things like purchasing power, inflation, interest rates, standard of living would be nice. My main question is whether the Euro is actually stronger and more stable and if so what criteria has been used to make that decision. I know practically no monetary currency is backed by gold anymore.
All three currencies are 'floating' freely on the currency market, and move against each other daily. There are no set values, and it's market forces that decide their values at any given time. There are a number of factors that move a currency against another. Some relate to fundamentals - relative health of its economy, success of monetary policy, interest rates, national debt, inflation and so on. But there are other forces at work, such as sentiments, speculation, chart analysis (called 'technical') and so on. As currency market is global with a huge number of players - from central banks, large corporations, to speculators, hedge funds etc, so it's very difficult, almost impossible, to predict its future movement, and why highly paid experts and analysts differ among themselves in their predictions and outlooks.
Very broadly speaking, the US$ has been on the slide lately, chiefly against euro and Japanese yen, and £ sterling somewhat to a lesser extent. Fundamental reasons are to do with the relative health of the underlying economy - while Eurozone and Japan are now emerging out of recession, US and UK still seem to be stuck with declining output and GDP, reflecting in low interest rates persisting well into 2010 and beyond. European Central Bank gave this week a strong indication about the end to the loose monetary policy (pumping liquidity into economy earlier in 2010), while no such intentions have come out of the Fed or Bank of England. Lower interest rates generally mean lower currency values, as international investors get less return for their investment.
All this may not concern us directly, but as people relocate to another country but are still paid or receive their pension or investment income in another currency, adverse movement can seriously affect their buying power and financial health. Most British expats in France have been hit very hard over the last two years with a sharp decline in the value of sterling against euro, from something near 1.50 euro to £ to around 1.10 now, a decline of around 27%. For reasons stated, nobody knows what the currency movement is likely to be 12 months from now, 3 months from now, or even next week. If you have some serious financial transaction pending, like buying or selling a property, it's possible to minimise your potential loss (but also not benefiting from favourable currency movement) by buying or selling currency futures, but you need a professional advice about it. For a would-be relocator, you just need to work out 'what if' scenarios using a predicted movement of your currency against another, such as 0%, 10%, 20% or 30% adverse or favourable, and estimate the viability of your planned move.
