Euro Forecasts for 2009

The Euro is currently overvalued by 50% against the American Dollar (on purchasing power parity. See Big Mac index)

In the past the Euro's strength has been justified because:

Strong anti inflationary credentials of European Central Bank.
The Euro seen as the emerging global reserve currency to take place of Dollar.
Relatively strong economic performance.

However, future prospects for the Euro, don't look good.

• Overvalued Housing markets are already beginning to fall. Countries like Spain and Ireland could see large price falls, as demand dries up and glut in supply continues. A housing crash could drag the rest of the economy into recession. Especially in a country like Spain, where construction and housing accounts for a big % of the economy.
• Slower growth in main European countries like France and Germany.
• European exports suffering from persistent strength of Euro
• Prospect of lower ECB interest rates to protect the eurozone slipping into recession.
• The decision is complicated by the fact that European inflation is high due to rising costs of oil. As a net oil importer the Eurozone has suffered from the record oil price increases