Euro reaches parity with dollar

stu2b50
2022-07-11T21:20:54Z

I didn't find any great links so made this a self post. Here are some just from Google but they mainly just say what's on the tin:

https://www.bloomberg.com/news/articles/2022-07-11/euro-plunges-to-fresh-two-decade-low-as-dollar-runs-rampant

https://www.cnn.com/2022/07/11/investing/euro-dollar-parity/index.html

https://www.reuters.com/markets/us/safe-haven-dollar-stands-tall-inflation-energy-jitters-2022-07-11/

As of 5:00 pm Eastern on July 11th 2022, if you check the exchange rate, the dollar is now 1:1 with the Euro.

In terms of effects, it seems complicated. Europe has a decently export heavy economy, unlike the US (for which only 10% of its GDP comes from manufacturing), so a weak Euro will help that.

However, it will make all imports more expensive. This is another supply shock, as most of continental Europe already faces heavy issues with regards to energy given the sanctions on Russia, one of the primary energy providers.

So it will certainly make domestic inflation worse (note: domestic inflation and the value of the currency on FX are different things - although they can mutually affect each other). If nothing else, the LNG Europe is buying from the US will be more expensive. The ECB has struggled to raise interest rates to fight inflation given Spain and Italy's high debt levels, and this won't help.

Winter could potentially be very, very bad.

For the US, a strong dollar is probably fine. The US is not a heavy export country, and the dollar surge helps cement reserve currency status from which the US gets a number of benefits. A slowdown in exports will also help tamper inflation.

The pound for the most part has tracked with the Euro, brexit or not.

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