Updated: Oct 2, 2022
Yes, it’s true.
This summer, the exchange rate between the US dollar and the euro has reached parity for the first time in 20 years, meaning that they trade (nearly) 1:1, while as little as a year ago a dollar was only worth 0.85 euro.
Why is this happening?
The dollar has been rising mainly because the Federal Reserve has been increasing interest rates faster than other important players of the global economy.
And also, amid fears of a worldwide recession and financial turmoil, the US is still doing better economically than most other countries.
So what does this mean for you, in practical terms?
1. European vacations have just become more affordable. This might not be an effect you feel every day, but it certainly boosts morale.
2. Investing in European equities looks like a good idea. If the euro strengthens against the dollar – as it is bound to happen sooner or later - then the return will be even better for those who initially invested in USD.
3. Products imported to America are cheaper. That includes fun things like Italian wine, Spanish ham and French fashion.
4. Now is the time to invest in European countries! A strong dollar means that purchasing real estate in European countries like Croatia or Greece is now cheaper for people whose earnings and savings are in USD.
5. The effects of the current favorable exchange rate might even be felt in the US housing market which will likely become less attractive to foreign investors, making it easier for locals to purchase a home.
How long will it stay like this?
Currency fluctiations are notoriously difficult to forecast, but the dollar keeping up its performance for at least another 5-6 months seems like a safe prediction.
In the meantime, invest wisely and take calculated risks!