Posted on 08/23/2022 1:53:33 PM PDT by SeekAndFind
NEW YORK — The euro has fallen below parity with the dollar, diving to its lowest level in 20 years and ending a one-to-one exchange rate with the U.S. currency.
It's a psychological barrier in the markets. But psychology is important, and the euro's slide underlines the foreboding in the 19 European countries using the currency as they struggle with an energy crisis caused by Russia's war in Ukraine.
Here's why the euro's slide is happening and what impact it could have:
WHAT DOES EURO AND DOLLAR PARITY MEAN?
It means the European and American currencies are worth the same amount. While constantly changing, the euro has dropped just below a value of $1 this week.
A currency's exchange rate can be a verdict on economic prospects, and Europe's have been fading. Expectations that the economy would see a rebound after turning the corner from the COVID-19 pandemic have been replaced by recession predictions.
More than anything, high energy prices and record inflation are to blame. Europe is far more dependent on Russian oil and natural gas than the U.S. to keep industry humming and generate electricity. Fears that the war in Ukraine will lead to a loss of Russian oil on global markets have pushed oil prices higher. And Russia has been cutting back natural gas supplies to the European Union, which EU leaders described as retaliation for sanctions and weapons deliveries to Ukraine.
Energy prices have driven euro-area inflation to a record 8.9% in July, making everything from groceries to utility bills more expensive. They also have raised fears about governments needing to ration natural gas to industries like steel, glassmaking and agriculture if Russia further reduces or shuts off the gas taps completely.
(Excerpt) Read more at khou.com ...
WHEN WAS THE LAST TIME THE EURO WAS EQUAL TO THE DOLLAR?
The euro was last valued below $1 on July 15, 2002.
The European currency hit its all-time high of $1.18 shortly after its launch on Jan. 1, 1999, but then began a long slide, falling through the $1 mark in February 2000 and hitting a record low of 82.30 cents in October 2000. It rose above parity in 2002 as large trade deficits and accounting scandals on Wall Street weighed on the dollar.
WHY IS THE EURO FALLING?
Many analysts attribute the euro’s slide to expectations for rapid interest rate increases by the U.S. Federal Reserve to combat inflation at close to 40-year highs.
As the Fed raises interest rates, the rates on interest-bearing investments tend to rise as well. If the Fed raises rates more than the European Central Bank, higher interest returns will attract investor money from euros into dollar-denominated investments. Those investors will have to sell euros and buy dollars to buy those holdings. That drives the euro down and the dollar up.
WHO WINS?
American tourists in Europe will find cheaper hotel and restaurant bills and admission tickets. The weaker euro could make European export goods more competitive on price in the United States. The U.S. and the EU are major trade partners, so the exchange rate shift will get noticed.
In the U.S., a stronger dollar means lower prices on imported goods — from cars and computers to toys and medical equipment — which could help moderate inflation.
WHO LOSES?
American companies that do a lot of business in Europe will see the revenue from those businesses shrink when and if they bring those earnings back to the U.S. If euro earnings remain in Europe to cover costs there, the exchange rate becomes less of an issue.
A key worry for the U.S. is that a stronger dollar makes U.S.-made products more expensive in overseas markets, widening the trade deficit and reducing economic output, while giving foreign products a price edge in the United States.
A weaker euro can be a headache for the European Central Bank because it can mean higher prices for imported goods, particularly oil, which is priced in dollars. The ECB is already being pulled in different directions: It is raising interest rates, the typical medicine for inflation, but higher rates also can slow economic growth.
“Many analysts attribute the euro’s slide to expectations for rapid interest rate increases by the U.S. Federal Reserve”
The Fed has been raising US interest rates like we haven’t seen in 40 years - .75% at a clip. That is the big reason for the dollar to strengthen in the short term.
“...Europe is far more dependent on Russian oil and natural gas...”
Trump warned those bastards. They laughed and ridiculed him. Now those haughty Eurotrash can suffer the pain they deserve, good and hard.
The British pound is also tumbling. Not quite at parity with the dollar but it is at 1.17
“...KHOU via Associated Press...”
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I think it is the other way around...
“Associated Press via KHOU”...
Once again, the only problem with ending the current U. S.
currency as the preferred global currency, is finding a
better replacement.
China is in an economic mess. Russia is.
We have got to start addressing our national debt. This
has to become one of the top priorities.
it has been a long long time coming.
I figured it would have (should have) already happened about 15 years ago.
Us corps that sell into the eu will see sales decline as us goods are now more expensive.
Noticed how you cited that Russia and China are an ‘economic mess’ yet failed to include the US, the EU, the UK, etc.
Awesome sauce, huh?
Yes indeed. Hoping they have a brutal winter — Turnip Winter Part Deux.
Okay. Which currency is better prepared to become the new
international currency?
Thanks in advance.
Don’t think there will be a replacement of the world reserve currency, as of yet, simply a duality that will be created and exist.
Nice avoidance there...
You’ve got nothin.
The dollar will continue to reign for the time being.
Dream on and do a bit of research.
World reserve currencies come and go and are replaced.
Historical fact cannot be ignored.
And given them historical numbers for how long a particular world reserve currency lasts, it near time for the US hegemony in such to end.
China, Russia, and Bric are creating a new world reserve currency to challenge that of the current US version. Bet.
Duality will exist.
“Since 1450 there have been six major world reserve currency periods. Portugal (1450–1530), Spain (1530–1640), Netherlands (1640–1720), France (1720–1815), Great Britain (1815–1920), and the United States from 1921 to today. If you notice the average currency span is 94 years. The US dollar presently has been the world’s reserve currency for roughly 99 years.”
https://www.midasgoldgroup.com/news/world-reserve-currencies-since-1450/
End is drawing near.
When exactly will it end.
No one knows.
But a duality is emerging.
Bet.
Each of those nations have compromised currencies.
So putting 15-20 compromised currencies together will
create one really super strong currency?
No, it will create one larger very unstable currency,
with nation state’s currencies creating negative
currents just beneath the surface constantly.
People who jump on that train will find out soon
enough. If you want to live in a fantasy land, go
ahead.
Time will tell yeah?
There is nothing to replace the dollar.
Saying to yourself, “Hey, I have a great idea how to
replace the dollar as the global currency.”, does
not make it so.
The Pound can’t do it.
The Chinese currency can’t.
The Russian currency can’t.
The Brazilian currency can’t.
Combined, they can’t.
Yes, it will.
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