Multiple Factors Are Weakening the Euro
As of Sunday, May 22, the euro was valued at $1.06, nearly on par with the U.S. dollar. Earlier this month, it fell as low as $1.035.
Various factors are at play. Global events like the Russia-Ukraine war, economic sanctions, supply chain challenges, rising inflation, and a slowdown in China’s economy could all be playing a part. And although those issues are causing economic uncertainty, the trend seems to be strengthening the U.S. dollar as investors turn to a trusted asset.
Additionally, a few events—like the ongoing European energy crisis—could be weakening the euro in a more direct fashion.
Will the Euro Reach Parity or Recover?
Some experts suggest that the euro could reach parity with the dollar by the end of the year if its value continues to weaken.
In a recent report, HSBC said that it “see[s] the euro-dollar moving to parity in the year ahead” and that it is “hard to see a silver lining” that might result in a better outcome for the European asset.
Others suggest that dollar parity is far from guaranteed. One JPMorgan executive told CNBC last week that dollar parity would require a “downgrade in growth expectations” comparable to the aftermath of the Ukraine invasion. He called dollar parity a worst-case scenario.
An expert from BMO Capital Markets similarly told CNBC that the euro and the dollar would only reach parity as the result of “policy inertia” from the European Central Bank over the course of the summer.
The euro has only been so close to dollar parity a few times in the past: in 1999 when it fell below the dollar’s value; in 2002, when it rose past the dollar’s value; and between 2015 and 2017 when it touched $1.04.
Investing in Foreign Currency Can Be Profitable
History suggests that the euro could recover from its current low price, but regardless of the outcome, forex investors have an opportunity.
Purchasing the euro before it recovers could be a savvy decision for investors if it does indeed recover. Alternatively, buying the U.S. dollar could be advantageous if the euro declines further in value.
At Payset, we offer foreign currency accounts with support for the U.S. dollar, the euro, and more than thirty other international currencies—giving you the chance to execute rapid trades.
