Euro-dollar parity, how does it affect export?
Hello! Today, from Venerable Capital, an export company, we want to talk about one of the most important points when it comes to exporting and importing: the value of coins. In case you had not noticed, the depreciation of the euro in recent months is leaving us closer to the euro-dollar parity. What’s that? We tell you.
What is the euro-dollar parity?
The euro-dollar parity is the point at which both the euro and the US dollar are worth exactly the same. That is, a change €1=$1. This situation has not occurred for 20 years, and would have important consequences for the economy of the euro zone.
Why does the euro-dollar parity occur?
There are several reasons, although they are all very similar. On the one hand, the conflict between Russia and Ukraine affects Europe more than the US in terms of food and energy distribution. Furthermore, Europe is energy dependent, while the US is independent.
Before this situation, the US economy was already in better shape than Europe and, to combat inflation, the US Federal Reserve will raise interest rates more aggressively than the ECB.
All this together, causes investors to see in the US, and therefore in the dollar, a much safer investment than in Europe and the euro. This is the reason why the euro has depreciated in recent months and is so close to reaching euro-dollar parity.
How does it affect the economy?
This parity has important effects for the European economy, both positive and negative, and all triggered by the importance of exports and imports, since most of the operations carried out in the world are made in US dollars. In Europe, around 50% of operations are directly in dollars.
On the negative side, we find a possible even greater rise in prices, especially for products that come from the US or, as we say, are bought in dollars. The euro-dollar parity means that, with the same amount of euros, companies can buy less quantity of product, that is, prices rise.
On the contrary, the opposite process occurs when exporting. All the European companies that export see how, receiving the same euros, the price has dropped for their buyers. This means that they can export even more and in a more competitive way compared to products from other continents.
Will we reach the euro-dollar parity? We will see the evolution of the euro-dollar exchange rate in the coming months, but everything indicates that it is. We hope that this article has resolved your doubts. If you have any left, let us know!