This article is about the economic backdrop. For the first time in 20 years, the euro has matched the value of the dollar. This had never happened since the European currency was launched.

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What are the motivations for this equalisation of currencies?

They are a conjunction of factors, both in relation to the strengthening of the dollar, but also the uncertainties mainly in the European bloc, and yes, we can say that two factors are preponderant for us to understand this movement.

High interest rates in the United States compared to Europe

The higher interest rates in the United States in comparison with the rate that currently prevails in Europe, in the Euro zone, causes capital to move from Europe to the United States, that is, the Euro is sold and the dollar is bought. What explains this appreciation of the dollar. That is a first factor.

Troubled and unstable environment caused by conflicts

Another second factor is a greater uncertainty regarding the European economic horizon, we see that Europe is much more dependent on gas from Russia, oil from Russia, much more involved by a geographical issue, with the conflict in Ukraine, with all the effects that this conflict also generates and, therefore, we consider that this is a second factor that also explains a certain migration of investors from the euro to the dollar.

Therefore, higher interest rates in the United States and a more troubled environment in Europe explain this appreciation of the exchange rate.

What is the interest rate ratio?

Today (12 July 2022) you already have an interest rate in the United States around 1.75. In fact, the Central Bank there has established a range between 1.50 and 1.75 for the American interest rate, while in the Eurozone the interest rate is close to zero. So, without any doubt whatsoever, this higher profitability of the American public bond in relation to the public bonds of the Euro Zone countries, for example, causes investors to migrate from the euro to the dollar in order to access these American bonds and thus take advantage of this higher profitability.

Is there any advantage to this devaluation of the euro against the dollar?

It is not bad for Europe, it is not bad for the Eurozone, a weaker currency and the stronger dollar. Let us remind our reader that the stronger dollar and the weaker euro favour exports from European countries. The more the currency is devalued, the more competitive the goods of the countries that use this currency become, the product becomes more competitive and this, of course, favours the economy of these countries. That is an analysis of the situation.

The current reality of this devaluation of the euro, at this time of lower economic growth, of threats, of recession affecting economies, is a sense of weakening of the European bloc. But this makes this devaluation of the euro a gain in terms of medium-long term for European countries, they are more competitive as a result.

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Is there any consequence of the value of the euro and dollar for other countries?

In fact, European products in comparison to American products become more competitive, so for several other countries that are not part of the European bloc, they gain an advantage in the case of importing European products. It would be a little easier to buy European products.

Remembering that we are talking about two currencies, the euro and the dollar, which are very stable in relation to each other, the movements, changes and variations in exchange rates from one currency to another usually happen with very low intensity. Over time, we have seen that in recent months, the US government has been a little more aggressive in terms of raising interest rates, and the result in terms of exchange rates is what we are seeing now.