The exchange rate of Euro has been falling for many months and it reached parity with the US dollar on 12th July 2022: on that day Euro was lower than $1, and it was never seen in 20 years of Euro. This is mainly due to Europe’s energy reliance on Russia, that with this Ukrainian conflict, has largely enlarged the spectrum of a possible recession. But how will it affect the economy?
Certainly, the heavier consequences of this equity will be paid by tourists: Americans that travel in Europe will receive more euros, but on the flip side Europeans will receive less dollars. This could hurt especially in the US tourism industry, already afflicted by the pandemic.
Besides, for decades this inequity between euro and dollar represented a monetary tool to get competitive trade advantages: but now due to the energetic crisis more is spent, and countries like Germany recorded their first trade deficit in July 2022, after more than 30 years of positive trends. All of this could make inflation worse, which in the euro zone has reached almost 9% and has favoured emerging countries like Brazil and Mexico, where interest rates sharply raised.
However even if the costs of energy and materials are rising, on the flip side there can be a potential trade too: it’s more expensive for Europeans to buy in America, but for Americans it’s cheaper than ever for example… to buy a new BMW The main question is: will the Euro continue to fall? This depends on what central banks will do. The US bank is raising interest rates more aggressively than the European central bank, pushing investors to focus more on US dollars than Euro. It is forecasted that the euro could continue to fall, but at a slower pace. But in this unstable geopolitical situation even the dollar could fall, entering a global economic recession. In this scenario we are assisting to a rebalance of maps for supplying chains for more and more products for example the Brazilian Reais fall takes with him a scarcity of meat in all of the internal Brazilian markets. It’s important to pay attention to this phenomenon whether you are an importer, exporter or both.
✅Edited by Shanice from the NY office of Pangea Studio Associato
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