EXPLAINED BY YOUNG PEOPLE FOR YOUNG PEOPLE 👨🎓👩🎓
For the first time in 20 years, the exchange rate between the Euro (EUR) and the US Dollar reached parity - meaning the two currencies were worth the same 🤯
What's happening?
As of this week, you can buy one Euro with one US dollar for the first time in 20 years. Historically, the Euro was stronger and €1 would have cost approximately $1.15
Two Reason Why This Happened?
1. MONETARY POLICY DIVERGENCE: One of the reasons is the way in which the Federal Reserve in the US (the US Central Bank) aggressively increased interest rates to fight off inflation vs the European Central Bank's inaction.
2. RUSSIA-UKRAINE WAR HAS DISPROPORTIONATE IMPACT ON EUROPE: Russia has already limited natural gas flows to Europe, which is a big blow to countries like Germany, who are highly dependent on Russian gas. Halt of gas supplies would almost certainly lead to a recession across Europe.
Five Takeaways For You
1. The last time this happened was 20 years ago, when the infamous dot-com bubble burst. So if we learn from history, it may offer us a few hints about the economy. Back then, the dot-com bubble era led to a crisis followed by a recession - so this week's EURUSD parity may aggravate our on-going Cost of Living Crisis and lead to a full blown recession
2. The next European Central Bank (ECB) meeting is scheduled for the 21st July and the market is expecting an interest rate hike, this may give the market confidence in the Euro (EUR) and help strengthen its value against the US Dollar (again). Let's wait and see!
EUR = USD EXPLAINED 👇
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