The euro hit its highest mark since 2011 by reaching an exchange rate of 1.395 dollars. Fire alarms are going off, but most analysts think that the European Central Bank (ECB) will not take corrective action tomorrow.
Draghi is under a lot of pressure to do something. Even Germany, who traditionally criticizes any unorthodox moves, wants to see him take action. Still, the euro?s strength continues to grow, which could negatively impact growth in the region as its goods are less competitive with goods produced elsewhere. In the EBC's last meeting a month ago, Draghi assured that he was still paying attention to how the exchange rate was behaving and how this was affecting inflation. A strong euro means that foreign goods look cheaper, which forces European businesses to drop their prices if they want to stay competitive. Petroleum prices fall, but deflationary risks rise. To fall into this economic black hole would be the worst thing that could happen to the euro zone's young recovery and could cripple peripheral nations that are trying to dig themselves out of a long recession and pay off their debt. When the euro rises against the dollar, our export capacity shrinks, and this is serious when exports are driving Spain's GDP.
Under current circumstances, companies who rely on exports for most of their business are suffering, because with the falling exchange rate consumers are spending less on Spanish goods and more on goods from their own country or elsewhere. With this in mind, even the Organisation for Economic Co-Operation and Development asked the ECB yesterday to lower rates to zero and take special measures to fix the currency. Is Draghi going to sit still until June and let the euro keep rising against the dollar? If he does, the fallout could cost the region a great deal.
