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Impact of Euro and Dollar Parity

Recently, the euro (EUR) and dollar (USD) have reached parity for the first time in 20 years. This means that one euro has the same value as one dollar. Different currencies have different values, with the USD being one of the strongest currencies (generally worth more than other currencies).



The euro and dollar parity is a result of economic struggles in the European Union. The EU currently faces an energy crisis, as a significant portion of its gas is received from Russia. The war in Ukraine has led to the EU cutting back on its Russia energy dependence and Russia reducing its supply of energy to the EU. Additionally, the European Central Bank is raising interest rates in response to the current high inflation rate. In the US, the Fed raised the interest rate, making it more favorable for investors to buy government bonds. These factors caused investors to give up their holdings in euros, turning to stronger currencies like the dollar, making the euro weaker and the dollar stronger.

More interest rate hikes by central banks is a cause of concern for businesses and companies. A stronger dollar means that goods cost more abroad: less foreign consumers can afford to buy the higher priced American goods. This would make the slow US economy even slower. Less exports also causes stocks to drop as international sales and profits of US corporations decrease, making them a riskier investment. As the US already suffers from the effects of inflation, excess inventory, and labor shortages, less exports is worrying.

On the other hand, a stronger dollar means that the general public has more spending power abroad. Trips to Europe are cheaper because flights and lodging cost less than before. Imports will also be cheaper, allowing more foreign goods to be bought by US consumers.



Sources

https://www.cnn.com/2022/07/12/investing/euro-dollar-parity/index.html

https://www.cnn.com/2022/07/12/investing/premarket-stocks-trading/index.html

https://www.usatoday.com/story/money/2022/07/12/euro-dollar-trade-parity-travelers/10007133002/


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