On Thursday, the European Central Bank announced an aggressive bond-buying program in an attempt to breathe life into the euro zone economy. After the announcement, the euro dropped more than 2 percent against the dollar which is welcome news for Americans with plans to visit Europe. Since dollars now have greater spending power in Europe hotels, meals and transportation will be cheaper.
In an attempt to spur growth the European Central Bank (ECB) has kept interest rates at record lows and funneled billions of euros into banks. However, the euro zone economy still has stagnant growth, high debt and a difficult labor market. This new policy will flood the euro zone with more than 1 trillion euros in hopes that it will breathe life back into the stagnant economy. This policy is similar to other policies used by the U.S. Federal Reserve, Bank of Japan, and Bank of England.
Despite this announcement being good for tourists, many economists feel that this will have little impact on our domestic economy. In our economy, most of our economic output comes from consumer spending, business investment and government expenditures. Although exports are vital for jobs and corporate profits, they represent a modest portion of our economy's gross domestic product (GDP). Although it may not have an enormous impact on our GDP, it did have an impact on the stock market. Equity markets like liquidity and tend to respond favorably to those announcements. On Thursday, U.S. broad market indices were up over 1.5 percent.
Only time will tell if this aggressive stimulus package can help to revive the euro zone economy. But for the time being, if you're traveling to Europe, enjoy the increased spending power that your dollar has.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).