When One Currency Changes, They All Change
If the euro weakens below parity with the USD, there could be a rippling effect across Europe and the U.S. If interest rate increases continue to stave off inflation, division is created as the hardship is not felt equally. Debts are not equally reimbursed, and economic recovery has varied timelines. Some regions may prosper while others may suffer from prolonged economic downturn, unemployment, and slumps that take decades to reverse.
Monetary policy is not one-size-fits-all. This is a drawback of a central currency for a region as large and diverse as the eurozone. COVID 19 made its world wide tour and, in its wake, it left widespread economic decline. The pandemic couldn’t be stopped and neither can inflation, unemployment, and recession. Global economies suffer with interruptions in supply chains, as well as from the slow return to normal work conditions. It could be years before we know how the story ends.
In the last couple of weeks, the euro tagged parity with the USD, and is dancing around levels that have not been traded since the euro was first introduced. Current EUR/USD price levels take us back to the time when the euro first established its place as a medium of exchange and a tool to help stabilize exchange rate volatility.
The present economic conditions are no less monumental or historic than they were when the European Central Bank and the euro itself were established. Nothing can be compared to the hardships following World Wars I and II, but the pandemic brought about changes that affect the entire world. Central banks will twist and turn their tools, stimulate their economies, then rein them in again.