On Wednesday 13th July, the Euro dropped by 0.4%, meaning a single euro could be purchased for $0.998 on the foreign exchange market.
The last and only time the euro was worth less than the dollar was in 2002, when euro cash was in its infancy and shared by only 12 member states. Since the start of the year, the euro has fallen by almost 12% against the dollar, amid fears that a sharp economic slowdown in the eurozone will leave the European Central Bank’s interest rates far below those of the Federal Reserve.
What has weakened the euro?
The war in Ukraine has pushed the single currency down due to fears that Russia may restrict Europe’s supplies of energy, thus increasing chances of recession in the euro area. A weakening currency will also make imports more expensive for eurozone countries, particularly goods priced in dollars, such as crude oil. This could therefore contribute to even higher inflation rates in the eurozone, which was already running at 8.6% for June.
Currencies tend to rise when the relevant central bank increases interest rates, hence why the dollar has been strong in recent months. It has been buoyed by the US Central Bank raising interest rates, and investors seeking the safety of dollar assets in times of global turmoil. Meanwhile, the European Central Bank (ECB) has lagged other central banks in raising rates, further weakening the euro. The ECB raised interest rates on the 21st July for the first time in 11 years, with further increases on the horizon.
So, what does this mean for the USA?
As the euro falls below the dollar, US consumers immediately benefit from the shift in exchange rate, as everything from Europe is effectively cheaper. Whether its wine and cheese from France, or cars imported from Italy or Germany, imported goods are now less expensive in US dollars.
Similarly, US tourists in Europe will now find that most domestic services and products are virtually discounted, potentially making Europe an even more popular holiday destination for Americans.
Additionally, European property is now 14.75% cheaper than it was a year ago for US investors, meaning that a significant ‘dollar discount’ is available right now. This is the time to snap up properties that are sold in euros to avail the discount. The costs of travel, property inspections and renovations are also reduced.
The outlook for real estate investors
As the euro starts to regain its strength, you could double down on your profit by adding the foreign exchange gains to any capital appreciation that your property receives, all the while earning rental income in a risk-diversified investment. A stronger dollar will also encourage American tourists to come and rent your overseas property.
For investors, a weaker euro equals a sale on investments into European companies. Lots of European companies are traded either on the New York Stock Exchange or Nasdaq, or are sold as American Depository Receipts (ADRs). As the euro is weakening in relation to the dollar, European ADRs are becoming cheaper.
It is unclear how Europe will escape its current energy shortage, and analysts warn that things will get worse given the persistent risk that a Russian gas cut-off could throw the region into a deep recession.
Keen to capitalise on the strong dollar? Contact us today to discover our properties.
