Last month, the Euro fell to trade at parity with the U.S. Dollar (i.e. 1 EUR = 1 USD) for the first time since November 2002.
The European currency traded at its lowest level of US$0.84 in 2001, after which it strengthened to nearly US$1.60 in 2008. Since then, it has weakened steadily, losing 12% so far this year.
👉 Why is the Euro so weak?
This is both a case of Dollar strength and Euro weakness. Europe's economy has been negatively affected by the Russia-Ukraine war and the European Central Bank (ECB) has also been slower than the U.S. Fed to raise rates to combat inflation. This makes the USD a more attractive currency to hold given that interest rates for USD-denominated investments provide a higher return.
👉 Why has the USD been so strong?
The main reason that the USD has remained relatively valuable is due to the U.S. Fed's tightening policy overtaking all other central banks. As mentioned above, a higher interest rate provides for more attractive investments - and with the U.S. leading in rate hikes, more investors globally have geared towards U.S. investments.
⚠️The Insight: For Investors / Traders⚠️
Until there is change in the dynamics that had caused the Euro to weaken, the Euro is likely to remain in a slump.
Investors should remember that a weak Euro is a challenge for importers and consumers in Europe. But there are some companies that stand to benefit. European exporters of vehicles like #BMW and luxury goods brands like #LVMH may benefit from higher sales as their products become cheaper for U.S. consumers.
Likewise, European holidays are now cheaper for tourists from countries with relatively strong currencies. This could benefit companies like #Ryanair , provided local travel within Europe doesn't slow.
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