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Did you know EUR/USD is one of the most traded currency pairs in the world? It represents the value of the US dollar per one euro. If you’ve been following the currency markets closely this summer, you’ve noticed something that hasn’t been seen in quite a while: the euro to dollar rate hitting exact parity with each other.
On July 14, 2022, the exchange rate between the two currencies was even for the first time in 20 years, a stunning reversal from the days when the euro was worth more than 1.5 times the American dollar’s value.
For those who trade in currency, there’s a lot to unpack here. Here are a few things you need to know about the new valuation of the euro and the dollar!
In order to combat inflation, the United States Federal Reserve has opted for an aggressive strategy that centers around increasing interest rates.
When governments choose to raise interest rates, they do so in order to make it more difficult to borrow money, encouraging consumers to spend less so prices can get under control. Already, the Federal Reserve has raised inflation rates twice in the summer of 2022.
The European Union has reacted much slower than the United States on this issue, in part because the EU has to consider 27 countries and how rising costs will affect each of them. That’s driven the euro’s decline against the dollar, as the increase in interest rates has made the dollar appear much more stable to investors.
Other currencies, such as the British pound sterling and the Japanese yen, have also fallen against the dollar, as the United States has been the most aggressive nation in fighting inflation. By comparison, the British and EU have been slower to react, and the Japanese don’t consider inflation to be an issue.
If you’re watching governments carefully to see how they react to the world market, you’re on the right track.
With the dollar at its strongest point in decades and interest rates likely to keep rising — especially as president Joe Biden tries to push inflation away with the Democratic Party facing voters in November’s midterm elections — now might be the time to buy foreign currencies.
With both the EU and the Bank of England set to react by raising interest rates, you might not have much time to maximize your investments in European currencies.
United States interest rates likely will keep rising, but once European nations start to follow suit, your gains won’t be as strong as they could be if you invest early. The euro to dollar rate is likely to start heading the other direction once the EU makes its move, and in the case of currency trading, timing is critical.
A strong dollar means two things: it’s a good time to travel and it’s a good time to make foreign investments.
If you’ve been waiting to invest in the euro’s future, you may not want to wait much longer. Now might be the time to strike while the United States government is pushing the dollar’s value as high as it can!
Quickly and easily calculate Euro to Dollar foreign exchange rates with this free currency converter here.
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