The standard rule works: what happens to the dollar and euro/Getty Images
< strong _ngcontent-sc88="">Ukrainians are very excited. Ukrainians are worried. The euro has fallen. In relation to the dollar. There is parity. To each other. Nightmare.
The last time this was seen was 22 years ago. And the Ukrainians are worried. It's funny, but an ordinary Ukrainian is much more worried about this situation than an ordinary German.
After all, in the Western world, the dynamics of exchange rates excites only professional financiers, but in Ukraine it's like a love of football. And Ukrainians can worry both about their national team and watch the Champions League matches.
What happened?
Why did the dollar and the euro reach parity? And is there a betrayal here?
Firstly, it is not the euro that is falling, but rather the dollar is strengthening. And not only in relation to the euro. The dollar is strengthening against all world currencies this year. And the euro is just one of the few. Everything is almost as predicted by the Kremlin elders – almost no one needs the dollar, and with their stupidity they violated the world order. Sarcasm.
Why is this happening?
- First and foremost reasonis an increase in rates. The value of money. The Fed went on to increase rates this year in response to inflation. In fact, this is the only way available now for the Central Bank to combat inflation, which has reached a 40-year high.
And then the standard rule works. If rates rise in a country, then the attractiveness of assets in that country, and hence the currency of that country, grows. The Fed is already raising rates sharply. The European Central Bank is still complaining, shrugging and only promising to do so. As a result, the dollar is strengthening against the Euro.
- The second reason is the problems already in Europe itself. The business model of Germany, the EU's main locomotive, was based for many years on the fact that they received cheap energy in Russia and sold expensive goods to China. And it worked. While energy was cheap.
The calculation of the Germans that Russia is only their barn with firewood did not materialize. And now a painful transition is taking place, which has already led to Germany's first trade deficit in who knows how many years.
The fact that the Germans have shut down their nuclear power plants doesn't help either. Moreover, the fact that there are problems with exports to China helps even less. For, unexpectedly, the Chinese do not like the fact that the Germans do not like the concentration camps of the Uyghurs and these Germans are talking about it out loud. And the Chinese in response include restrictions.
Trading problems could not but affect the course. The good news for German business is that a weaker euro will support German exporters.
And the third reason for a stronger dollar is the fear of a recession. Now, more and more people are pawning the possibility that the world, or at least most of it, will go into recession. And that means the global financial crisis. What do money do when they see the prospect of a crisis? Escape to safe havens. To safe places. Go into reliability. And this, oddly enough, the dollar. Hello again to the Kremlin elders.
And what about Ukraine?
But nothing. Unless now the fixation of the hryvnia exchange rate against the dollar plays against us. Because at this moment it turns out that the official hryvnia strengthens its position during the war in relation to the euro, zloty and other currencies. Which is an amazing fact. Which does not support the Ukrainian economy at all. Although, perhaps, it is holding back certain inflationary processes.
What will happen next in the euro-dollar pair?
Or anything can happen. Since the course of this pair is impossible to predict. For all your predictions must be based on certain information. But everyone in the world already knows this information. This means that it has already affected the current exchange rate. So, here you just need to relax and buy popcorn. And understand that nothing extreme is happening. Because there was a time when this rate was generally 1.5 dollars to the euro. And the current changes are nothing compared to the previous fluctuations. And they didn't bring down the world.
