This article was last updated on July 12, 2022
For the first time in 20 years, 1 euro equals 1 dollar as the value of the euro declines.
Recent weeks have seen a significant decline in the value of the euro relative to the dollar, making both currencies roughly equal in value. It hasn’t happened since 2002.
Due to the drop, American tourists can now spend around 15% more in Europe per dollar than they could a year ago. On the other hand, Americans charge far more than Europeans. It also has important effects on businesses that do business on the other side of the Atlantic.
A euro has been worth more than a dollar for the previous 20 years, reaching its pinnacle in 2008 when 1 euro was equivalent to 1.60 dollars. The euro’s value has already declined significantly in 2014, and a new slide has been underway since last summer.
The central bank system in the US’s monetary policy is a significant factor in this downturn. Prior to the European Central Bank, steps had been taken to raise interest rates. Because of this, it is appealing for investors to keep money in the United States, which raises the price of dollars.
Lessening confidence in the euro is also a result of worries about the expansion of the eurozone’s economy. The situation in Ukraine is making inflation higher and is probably going to hinder growth. More and more economists believe that the European economy will contract in the near future. Concerns have also been raised about whether or not eurozone countries will be able to get enough gas in the long run if Russia keeps turning off the gas tap.
Though less so than in Europe, there are worries about economic growth in the US. In relation to the Swiss franc, the euro’s value has decreased as well. A euro is still worth approximately 0.99 Swiss francs, down from last year’s value of 1.09 francs.
However, according to Teeuwe Mevissers, senior macro strategist at Rabobank, the dollar is mostly strengthening. Particularly recently, emerging market currencies have been punished even more.
Commodities like oil are getting more expensive for businesses in the eurozone due to the euro’s declining value. Payment for oil is typically made in dollars.
According to Mevissers of Rabobank, “the lower euro exchange rate indicates that the already strong inflation is experiencing further upward pressure.” “There is another element in addition to the current reasons for inflation. That result could be referred to as “import inflation.”
The cost of importing goods from the United States is rising as well. However, it will be simpler for Dutch businesses to compete if they export goods to the US.
MeVisen predicts that the euro will soon appreciate once more because the ECB will increase interest rates. “The central bank will gradually come to view the euro exchange rate with distrust.”