The euro is close to parity against the dollar for the first time in 20 years, compared with around $1.22 in June last year and far from $1.60 when the United States entered crisis. In fact, we have seen the EUR/USD cross fall and bounce from new cycle lows around $1.0070 on Friday . The dollar strengthened on risk-off sentiment as concerns over Russia's war in Ukraine, rising inflation, supply chain issues, slowing growth and tightening monetary policy led to investors to turn to traditional safe-haven assets and the dollar is well positioned. And to date there is considerable divergence between the Fed and the ECB . Fed Chair Jerome Powell said the central bank will not stop raising rates until inflation drops to a manageable level. He reiterated his goal of bringing inflation closer to the 2% target set by the Fed.
However, the European Central Bank has not raised interest rates, despite the high inflation rate in the EU. If the Fed raises rates and the ECB Country Email List does not, there is a clear incentive to be in dollars, since the profitability of US Treasury bonds is higher than those of European debt. Usgg10yr Ind The key is the monetary policy to follow... We start from a Federal Reserve that has increased its interest rates by 150 basis points, while the ECB did not move. While European rate setters have signaled the start of their hiking cycle, including a potential 50 basis point hike in September . Falling behind has its consequences when assessing the strength of both currencies , which will have a direct impact on their respective imports and exports. The weakness of the euro poses a threat to price stability in the Eurozone by making imported goods and raw materials more expensive, thanks to the higher cost of dollars.
We are already experiencing high inflation rates and in the coming months everything will depend on the actions taken by the monetary authority . If we let the euro fall, we will be importing a higher degree of inflation because raw materials that have already suffered a strong appreciation are priced in dollars . More inflation means depressed real wages, a complex investment environment because your real returns will be negative in most categories of the investment universe, and a constant source of uncertainty that makes long-term planning difficult. cpi In a net energy importing environment such as Europe, dependency and a weakened currency is a problem. It is clearly seen in gas prices. Natural gas prices in Europe have increased considerably in general and show a strong oscillation in recent months, a reality that is not replicated in the same way in the United States with lower prices and softer oscillations.