The American dollar has hit an all-time high against the euro. While exchange rates are 1 to 1, rates did fall below parity at the start of August.
This makes the euro cheaper to buy. And with that, investments in Europe (for those holding US dollars) are cheaper and more accessible!
If you’re an investor, buying European property is a hot deal right now – with many deals being 17% cheaper than a year prior!
Is the Euro to Dollar Fall a Common Occurrence?
Not at all. Since the euro’s inception in 1999, the EUR to USD conversion rate has rarely spent any time below parity.
The last time the euro saw a drop that sharp was through 1999-2002, sinking to a $0.82 low.
But the current fall shouldn’t be that sharp though. Predictions put the lowest price the euro will reach at $0.95, since it is a popular asset that sees heavy demand from currency markets.
The Consequences for Dollar Holders
Dollar-holding investors (Americans specifically) benefit a lot from the drop. It means a cheaper investment market in Europe.
This means more opportunities to buy or invest there, opening up mobility options for many, such as creating a wider passport portfolio.
For example, it makes citizenship by investment options easier. Investors can now buy property deals that should go up in value as the market corrects.
But let’s break down the drop further. What caused the euro’s fall against the dollar (or more specifically, what made the dollar spike)?
We’ll answer those questions below!
#1 – US Rate Hikes
The Federal Reserve has aggressively hiked the dollar a few times this year. More hikes are being planned in progress.
What have those hikes caused? They’ve led to a greater appeal for the US dollar, with investments flocking to US banks.
As a result, those hikes haven’t necessarily dropped the euro’s value. It’s more that the US dollar’s value has shot up compared to every other currency.
#2 – Euro Area Recession
Europe is suffering from a few resource issues right now.
One is a critical energy problem, with gas prices having multiplied by ten times since Ukraine’s war. Plus, the winter season is approaching, which will put more strain on Europe’s energy demand.
With rising energy prices comes the risk of a recession, or at least an economic slowdown.
The European Central Bank is expected to tackle those issues – with planned rate hikes (as announced at its 21st July meeting). This may include a 50 basis point hike in September this year.
#3 – The Ukraine War
The ongoing war in Ukraine has caused major regional instability. Specifically, it has led to rising tensions between Russia and the EU.
Regional tensions aside, the Ukraine war has also caused food and consumer product shortages worldwide, with those shortages affecting the EU too.
This has led to rising consumer prices, which are made worse by the energy problems Europe is experiencing right now.
The current fall of the euro reflects many problems that the region’s going through.
But for US citizens (and dollar holders), those problems can be turned into opportunities. They allow for cheaper investments, easier access to Europe, and higher chances of getting investment citizenship there!