For the first time in 20 years, the euro and the dollar are at par. The unstable nature of international markets, especially pronounced by the conflict in Ukraine, has caused a weakening of European currency, bringing it level with American currency. The above-mentioned conflict has caused a very high level of inflation which could sky rocket even more if measures are not taken.
For some analysts, this is the key factor. The United States has led the way in taking action by raising interest rates, while Europe seems to have lagged behind. Although the European Central Bank (BCE) raised rates by 0.5% in July and another 0.75% more recently, for a cumulative 1.25% in a short time, the United States Federal Reserve (Fed) moved forward more aggressively in adjusting rates for inflation and raised them again just a few days ago.
It’s important to note that Europe has a greater dependency on Russian natural gas, which could lead to more problems in the coming months. At the same time, Americans are receiving a large influx of capital investment in the face of doubts about Europe’s short-term future. To sum up these circumstances, the euro has seen its value wane and the dollar has caught up.
Consequences and opportunities
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A good example of this is the review that one of the main comparison sites gave the Voyager cryptocurrency exchange to show how it can accommodate those who want to trade with this FinTech. The review was done by one of the main comparison sites, Forex Broker Reviews, where you can find reviews and rankings of other companies in this sector.
Regarding the consequences that could result from the new currency parity, the effects are varied, although obviously unfavorable for Europeans in general and for their finances in particular. Raw materials in Europe have already increased in price because of the energy crisis. And now, having to pay in dollars will make this even worse.
All of this can cause significant problems, especially for small and medium-size companies. It also doesn’t help when trying to combat inflation because manufacturers will have to pass on the price differential to their consumers. A similar thing is happening with imports. Their price in American currency is increasing, which means that goods that come from the US will be more expensive and will again affect the final consumer (and obviously the whole supply chain).
Less negative aspects
On the positive side, exports will be more economical, which could give them a boost along with European industry, which would then result in an increase in Gross Domestic Product. Tourism could also benefit, since American visitors, spurred on by this much awaited parity, could increase their travel and thereby stimulate the economy of many countries. The reverse, however, will be negatively affected. If Europeans were looking forward to visiting Manhattan, for example, it might be better for them to wait a while.
With regard to the pound, the situation isn’t much different than that of the euro relative to the dollar. The pound’s fall has been significant since the beginning of August, although the trend started in April, as it did with European currency.
And the first statements by Liz Truss as Prime Minister exacerbated this effect even more when she included in her agenda the intention of increasing the national debt. The result was that the pound reached its lowest level relative to the dollar since 1985. However, some of Truss’s proposed measures related to energy seem like they could bear fruit this year and thereby curb inflation.