In its June Global Economic Prospects report, President David Malpass remarked that even "if a global recession is averted, the pain of stagflation could persist for several years - unless major supply increases are set in motion." Does a stronger dollar save money for Americans traveling in Europe? In the larger economic picture, a recession in Europe, especially one that involves rationing of gas and energy, could lead to a global recession, of which the World Bank has recently warned. A continuing advantage for the dollar over the euro might lead to a heightened trade imbalance and hurt the economic output of American businesses.Īmerican businesses and workers that operate in Europe and are paid in euros will also see their incomes decrease, if they are converting their European earnings back to dollars. The US is a major trading partner with Europe, and while the weaker euro should bring price discounts on imports for American consumers, it will make American products more expensive for European consumers. In fact, the Federal Reserve's Real Broad Dollar Index - an inflation-adjusted valuation of the US dollar - is at its highest point since its creation in 2006. This has helped strengthen the US dollar throughout 2022, while weakening the euro. As American interest rates rise, so does the value of interest-bearing accounts in the US, making them more attractive to investors globally.Īs more investors convert euros into dollars to invest, the value of the euro drops. The Fed's decision to raise interest rates in the US has had an indirect impact on the euro's value. Recession & structural headwinds are coming," Robin Brooks, chief economist at the institute of International Finance tweeted on Thursday.Īlso, although the European Central Bank raised interest rates 0.50% in July 2022, the US Federal Reserve has raised rates four times this year for a total of an 2.25% increase, with another hike expected next month. "Russia's invasion of Ukraine is a seismic shock for the Euro zone, because so much of the European growth model has been predicated on cheap Russian energy. The value of the euro has plunged in 2022.Įconomic shocks from the war in Ukraine, particularly related to rising gas and oil prices, have hit Europe harder than the US, and have many experts predicting an extended recession in Europe. While this economic outlook bears a striking resemblance to what's happening in the US, with inflation rising 8.5% year-over-year as of Aug. To start, inflation is hitting Europe hard, with an 8.9% rate in July and no relief expected through the end of 2022. Why is the dollar almost equal to the euro? After its introduction in 1999, the euro was worth less than the dollar for a few years, but has held a higher value consistently since 2003, reaching a high of near $1.60 during the summer of 2008. With about €1.6 trillion in circulation as of June 2022, the euro is the second largest reserve currency in the world, trailing only the US dollar. According to the European Central Bank, more than 340 million Europeans use the euro. The EU introduced the euro as a digital currency in 1999 and began rolling out coins and paper money in 2002.
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