With the Dollar-Euro Exchange Rate Around One-For-One, Here’s What To Know
The euro is the European Union’s shared currency, which began as a digital currency in 1999 before paper money and coins were eventually printed several years later. Its value in comparison to other currencies has been falling over the last 12 months. As of last week, the euro was worth right around one US dollar, which hasn’t been the case for 20 years.
According to the European Central Bank (or ECB), upwards of 340 million Europeans use the euro. A recent count shows there are around 1.6 trillion euro in circulation. It’s the world’s second largest reserve currency behind only the US dollar. The euro first became worth more than the dollar in 2003, hitting a high water mark of $1.60 in 2008.
One of the main factors driving down the euro’s value is inflation. Europe’s inflation rate checked in at 8.6% year-over-year in June, which is similar to June’s CPI of 9.1%. The biggest difference between the two economies is monetary policy. The Federal Reserve has aggressively hiked rates in a bid to slow inflation, while the ECB is more hesitant given the war in Ukraine.
Gas and oil prices have also hit the eurozone harder due to its proximity and dependence on Russia, one of the world’s largest producers of fossil fuels.
The Fed’s rate hikes also indirectly push down the euro’s value relative to the dollar. Global investors may prefer to put money into interest-bearing accounts in the US because rates are higher, and that pushes up the dollar’s value.
For people living and spending money here in the US, the euro’s diminished value may seem unimportant. In reality, it could mean boosted spending power when buying things or traveling in Europe. Because the dollar is stronger by comparison, products imported from Europe will effectively be discounted.
For the broader economy there is a potential downside from dollar-euro parity. American goods being more expensive could impact the trade balance by boosting imports and harming exports. Also, Europe entering a recession would harm the global economy, including that of the US.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.