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Luminor: depreciation of the euro against the dollar will benefit the European economy

According to Lenno Uusküla, chief economist at the Estonian Luminor, the situation has reached the point where the euro and the dollar are worth the same, that is, one dollar for one euro. Simply put, this means that buying some goods from the US has become significantly more expensive for Europeans. The bank announced this on Thursday to BNS, commenting on the emerging parity of currencies, when the US dollar and euro exchange rates equaled 1:1.

“Previously, the expensive euro meant that it was sometimes much cheaper to buy and order goods from the US. For example, therefore, it was used mainly for ordering equipment. However, with the current almost non-existent price difference, this is no longer practical,” Uusküla said.

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However, Luminor’s chief economist said that the achievement of parity or equality by the euro exchange rate is not unexpected. The euro exchange rate peaked in 2008, when its value was $1.6 per euro. Since then, the value of the euro has fallen, staying close to one in 2015-2017. Immediately after the introduction of the euro, the exchange rate was also below one for several years.

For example, the chief economist said that if at the peak of the euro you could buy a product worth 600 dollars for about 375 euros, today there is practically no difference in which currency the price is indicated – in dollars or euros, because the goods cost the same in both currencies.

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“However, for the eurozone as a whole, the current situation means an increase in the number of jobs, since the goods and services of the eurozone are more competitive in the world market. This, in turn, ensures the preservation of existing and the creation of new jobs. Therefore, the current situation is bad news for us in terms of rising prices, but good news for the European economy as a whole,” Uusküla explained.

The main reason for the weakness of the euro is the difference in interest rates between the US and the eurozone. Uusküla said interest rates in the US are already nearly two percent higher than those in the eurozone and are expected to remain higher for an extended period.

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“More and more money is moving from euros to dollars around the world as economic growth expectations in the eurozone are also worse than in the US. This in turn increases demand for dollars and pushes the value of the dollar up,” Luminor’s chief economist said. . He expects the euro to continue depreciating in the near term.

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