The Dollar and Euro are Near Equal
After a year of gradual decline, the euro (the European Union’s common currency) is currently worth almost the same as the US dollar. The euro, worth around $1.22 at the end of May 2021, is now worth about $1, the lowest it has been in two decades.
The depreciation of the European currency may benefit American visitors who fund their foreign excursions with dollars, as their money now buys more when compared to prices in euros. The change in currency rates will also impact American businesses. While imports into the US are now cheaper, American enterprises selling to Europe or competing with European imports may face stiffer competition.
Why has the US dollar held its value while the euro has declined? Europe, like the United States, is facing high inflation, but the European Union has yet to hike interest rates and is facing other economic limitations, including the crisis in Ukraine.
Why is the euro losing value?
To begin, Europe is experiencing severe inflation, with a projected 8.6 percent rate in June and no relief expected until the end of 2022.
While this economic forecast is strikingly similar to what is happening in the United States, with inflation rising 9.1 percent year on year as of June 2022, there are some significant distinctions.
Furthermore, the European Central Bank has yet to raise interest rates in 2022 whereas the Federal Reserve has hiked rates three times, with another aggressive rate hike coming this month.
The United States is a key economic partner with Europe. While a weaker euro should result in lower import prices for American customers, making American goods more expensive for European consumers. A sustained dollar advantage over the euro might exacerbate trade imbalances and harm the economic output of American enterprises.
If American businesses and people that operate in Europe and are paid in euros convert their earnings back to dollars, their income will decline.
Compared to last summer, a weaker euro represents an approximately 15% savings for Americans using dollars to buy European products. In 2021, for example, $100 would only buy roughly €82 worth of goods or services. That same hundred dollars can now get you €100.
