Long Term Advantages of a high exchange rate:
There are certainly several advantages to keep the Euro (EUR) at a high level compared to the US Dollar (USD):
Import Strength:
The fall of the USD versus the EUR will cause a shift in the import/export balance between Europe and the US. Given the relative higher purchasing power of the EUR, it enables the EUR users to import goods cheaper from the US and therefore imports from the US will increase. According to the BEA [1] US exports to the EU were up by 14% in 2004.
Purchasing Power abroad:
As a consumer or tourist, my relative purchasing power in the US has increased and thus I can shop for products sold in the US cheaper. Tourism therefore to the US will increase. "What we are seeing is a double-digit increase in international shoppers over last year," [2] The report continues that "for example, in 2003, the average house in Florida cost $160,000, or about 98,000 British pounds. This year, the same house has increased its value to $170,000, but because of the falling dollar, British buyers can buy it for just 89,000 pounds, according to the Scotsman, a Scottish newspaper. Now that's a bargain in any investor's book."
Raw materials:
Most of the raw materials, including crude oil, are traded in USD. Thus these raw materials become relatively cheaper by buying them from the US than from within the EUR territories.
Benefits for the US:
The increase of exports to EUR countries helps the US to decrease their deficit in the trade balance by exporting more material while imports become unattractive due to the high import prices. As an example: Boeing will be able to sell products easier into Europe. With this disadvantage for the Airbus industry, government w ...