ECONOMIC VIEW:
(20 August 2001)
If you have extra money and are
thinking to do some long-term currency investment, I would suggest you to buy
the "Euro". Earlier this year, I had a discussion with Adrian Woo (an
old friend of mine as we normally have an informal discussion about the world
economy and the financial markets once a month but I am not good at the
latter.), who has devoted a lot of time on studying the financial markets, I
suggested him to buy the Euro for one of the long-term investment plans. For
myself, I do track the currency movement very often. What I find is that the
Euro has recently gone up tremendously against the Hong Kong dollar (HK$) and
other major currencies since it reached the lowest level in June:
Currency Exchange Rates |
||||
|
Date |
HK$ / 1EUR |
US$ / 1EUR |
GBP / 1EUR |
JPY / 1EUR |
|
01/06/2001 |
6.60 |
0.85 |
0.60 |
100.88 |
|
20/08/2001 |
7.15 |
0.92 |
0.63 |
110.18 |
Source: Economist.com
Due to the differences in interest
rates, uncertainties of the US economy and so on, the Euro might go up further.
The European Central Bank (ECB) has set an inflation target of 0-2% but the
current inflation rate has risen above its target level. Its inflation rate
will not fall back to their target level before the end of 2001. Therefore, it
is unlikely that the ECB will reduce interest rates before 2001 (They have
already cut interest rates once this year.) because their goal is price
stability rather than growth and employment. Even they do, money will still
flow into Europe's stock markets, as Woo has pointed out that some of these
markets (e.g. the German stock market) are under-valued. This will strengthen
the value of the Euro. Overall, the Euroland economy is getting on the track to
recovery and some member economies like Ireland and Northern Europe are still
doing very well.
At the moment, the Euro is still in
"electronic form" since it was first launched on 1 January 1999. It
has been criticised about its weakness. It now buys around 92 American cents,
compared with US$1.17 when it was launched. The notes and coins of Euro will go
into circulation on 1 January 2002. Then, the national currencies of the
12-member Euroland countries will disappear gradually before the end of 2002.
So far, only Denmark, Sweden and the UK from the 15-member European Union (EU)
countries have been outside the Euro.
As the Euro will be the main
currency in the Euroland from January 2002 onwards and there will be some more
European countries joining the EU as well as the Euro before 2010. I believe
that the value of the Euro will begin to stablise next year and become a strong
currency in the long run.