Euro/dollar parity: how will it affect Europe and its citizens?

After accumulating a depreciation of 12% so far this year, last Tuesday, July 12, 2022, at 11:46 a.m., a historic moment has arrived, since the euro dollar parity.

And now a multitude of unknowns arise, the first, of course, what will be the consequences of the dollar/euro equivalence for Europe, tourism or the citizen.

But before that, another question arises: Why is the euro worth the same as the dollar?

Why did the equivalence between the euro and the dollar arrive?

One of the main reasons given by experts for achieving this euro/dollar equality is the different monetary policy speed of the US Federal Reserve (Fed) and the European Central Bank (ECB), which, as pointed out Business Insider Spain political analyst and professor EAE Business SchoolJuan Carlos Higueras, “has not decided to end the inflation“.

He refers to the fact that the Fed has already set 3 interest rate hikes since last March. The last, announcement on June 15, 2022, it was 75 basis points, the highest since 1994.

Business Insider Spain.

However, the European Central Bank (ECB) is more cautious and has not yet applied an increase, although it should do so (by 25 basis points) soon.

For Yago Álvarez, economic journalist of The jumpthis is the only reason: “The decoupling between the policies of the Fed and the ECB is due to the fact that the United States – which has put in much more money than Europe to get out of the coronavirus – can afford to raise interest rates, but Europe, with its very high public and private debt, no, and Lagarde knows it.”

Finally, the ECB will increase them, continues Álvarez, “because it is under a lot of pressure, and it will be good for the banks (who will make more money with it), for savers and for those who are obsessed with balancing the accounts -although this means cutting education or health-, but not for the rest of the population, since will reduce private consumption and mortgage lending will increase“.

interest rate on a mortgage

He rejects the argument that the euro is falling fear of recessionn, “But we fear the recession more in the United States than in Europe!”, he exclaims. analyst Neil Wilson disagrees, who in this Article of Bolsamaniaassures that “the ECB is playing while the currency is burning, causing more inflation and misery. It is time for an emergency hike to show that it is serious. The market no longer believes the ECB.”

What consequences does the euro/dollar parity have for Europe and its citizens?

For Higueras, the main consequence is a rise in inflation. Further, it highlights, “as we are net importers, most of the products we purchase will become more expensive. And logically, on the positive side, this will favor exports. »

In the article of BolsamaniaBen Laidler, Global Markets Strategist at eToro, points out that the devaluation of the euro will mean growth for many exporters, “from Airbus to ASML”, and will benefit export-oriented sectors, such as automobile industrychemicals, luxury or aeronautics.

Álvarez believes that the main effect will be related to the Oil, since “the barrel of Brent continues to be exchanged in dollars (until someone finally dares to change it)”. As a professor at the EAE Business School, he points out that anything from abroad will be more expensive,” and we import many raw materialsso it destroys us.”

How does the dollar/euro equivalence affect investors and businesses?

Higueras insists that the dollar is a safe haven, but the euro is not. Likewise, he points out, “everyone is aware that Europe is the weakest part, at the geopolitical level, of the major world economies and that we will enter a recession long before the United States“.

In InvestGuillermo Santos Aramburo, partner at iCapital and global markets expert, makes the same point: “The dollar is the only asset that shows itself as investment haven in a year as complicated as the present.

The U.S. currency, adds Aramburo, is still the receiver of “frightening money from anywhere in the world.” This is how the expert justifies the revaluation of 12% during 2022 and that the parity between the dollar and the euro is reached.

The euro/dollar parity is good for tourism

Higueras and El Salto journalist agree point to tourism as one of the sectors that have benefited the most from this equivalence between the euro and the dollar. Logically, comments the first, “coming to Europe will be much cheaper for Americans, even if it must also be recognized that traveling to the United States from here is prohibitively expensive”.

In the words of Álvarez, this situation is ideal for all tourists who come from outside Europe, although he remembers that the vast majority of travelers who choose Spain as a tourist destination They come from other countries of the European Union.

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