For the first time in 20 years, the U.S. dollar is nearly equal in value to the euro.
While that may sound good for the dollar, it could be a double-edged sword.
Why? If the dollar becomes too strong, it could harm business for American companies, because their goods may become more expensive for foreign buyers. And if sales of U.S. exports decrease, that could further slow down an already stalled U.S. economy.
On the other hand, a strong dollar helps Americans who are traveling in Europe, giving them more buying power.
The weakening euro has been getting closer to parity with the U.S. dollar since mid-2021. A very robust June jobs report on Friday, and analysts’ expectations of a further 0.75 percentage point hike by the Federal Reserve this month are making the dollar stronger than expected.
Mark Zandi, chief economist at Moody’s Analytics, estimates a 10% increase in the dollar within the past year against the foreign currencies.
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Why is the US dollar so strong right now?
“Generally, the euro has been higher than the dollar,” Zandi said. “But there’s been a weakening and the euro is now more vulnerable due to the Russian invasion in Ukraine and that’s leading to higher oil prices, natural gas, and agricultural prices.”
What does a stronger US dollar mean for American travelers visiting Europe?
“Going to Europe looks a lot cheaper to Americans compared to last summer,” Zandi said. “With a stronger dollar that’s helping offset the cost of airfare and hotel room rates about 10- to 20% cheaper.
“If you’re thinking about traveling and have some excess savings, now is the time to go.”
Of course, the opposite is true for European travelers heading to the states.
“The U.S. looks incredibly expensive to Europeans compared to this time last year, about 10- to 15% more,” he said.
What does a strong U.S. dollar mean for imports, exports?
Zandi said that while a strong dollar may help consumers buy more imported goods, it’s not so good for exports.
“if you’re an importer, the strength of the dollar is a good thing, but it’s a bad thing globally,” Zandi said. “Like, in Europe, or in the U.K., Australia, even Canada, you have to pay for more U.S. goods coming in. It adds more to the global inflationary problems.”
Zandi expects the dollar’s strength against the euro to last for a year or two.
“I don’t see the dollar significantly weakening any time soon,” he said.
Follow Terry Collins on Twitter at @terryscollins
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