It’s not a good time to start thinking about the vacation of a lifetime in the United States. Suddenly the euro has dropped against the dollar, with exchange rates pretty much exactly one-to-one, and is expected to fall further in the coming weeks, with record lows of 90 US cents to the euro predicted by experts.
His new euro crisis raises a few issues, but here are the key points.
The EU’s single currency – the jewel in the crown of European integration – has been on the international money markets since January 1999. Banknotes and coins came our way on 1 January 2002 in a massive switchover that took place with little disruption in the 12 founding economies, including Ireland.
Currently 19 countries use the euro and this number will soon increase to 20. This week it reached parity with the US dollar for the first time since 2002 and is forecast to fall further.
The causes of this brutal fall in value are: inflation at a 40-year high, overshadowed by accelerating economic growth; resulting recession fears; and war in Europe.
In contrast, the dollar is appreciating in relative terms – not only against the euro, but also against other currencies such as the Japanese yen and British pound sterling. The US Federal Reserve has raised interest rates by three-quarters of a point since mid-June.
The European Central Bank (ECB), which governs the euro, was due to hike interest rates this month but has delayed the inevitable. Investors flee to the dollar.
2. Ups and downs passed
On October 26, 2000, the newly introduced euro hit 82 cents against the dollar due to the looming recession in the EU. On the other hand, on July 15, 2008, the euro reached its highest value to date at 1.6 dollars. This was due to the US bank crash triggered by subprime lending.
In May 2014, the euro reached another high of 1.4 to the dollar. This time the rise was seen as the Eurozone recovering from a huge debt crisis.
But by March 2015, the euro had fallen back to $1.06, very close to parity. This was a deliberate policy by the ECB to keep international value low to support Eurozone exports.
In 2018, strong economic growth in the eurozone and doubts about the US economy pushed the euro back up to 1.25 against the dollar. In spring 2020, fears of the economic consequences of Covid drove values back down to 1.07 per dollar. At the moment, the two are on an equal footing.
3. Winners and losers in the currency carousel
Exporters to the US generally benefit as euro-denominated prices become more competitive and stimulate exports. Certainly good news for the Irish pharma and technology sectors. Tourism should also get a boost as US visitors will get more for their money – although rising Irish prices will hurt that.
The real losers are small and medium-sized companies that don’t export. Bad news for citizens whose purchasing power has been cut as well, as many imports from outside the US are also priced in dollars, especially energy. When families’ purchasing power falls, so does their spending, further fueling fears of a recession.
4. Dilemma of Eurozone authorities
The ECB will soon have to raise interest rates to curb rising prices. But that’s a tricky bill. If they apply too much pressure, they risk slowing economic growth further.
The topic is primarily economically but also politically heavily burdened. But the ECB must act soon.
5. Ireland’s story is better – for now
In the post-2008 crash, Ireland was caught up by the economic laggards known as PIGS – Portugal, Ireland, Greece and Spain. We are now doing relatively better, with a stronger economy despite a long-term debt overhang of 230 billion euros.
This year, government tax revenues and generally good management are keeping Ireland’s borrowing costs low compared to other countries. The longer term – with the threat of energy rationing – is another matter.
https://www.independent.ie/opinion/analysis/decreasing-euro-values-against-the-dollar-have-big-implications-for-all-of-us-41843938.html Declining values of the euro against the dollar have a major impact on all of us