This time, the Euro has not only reached parity but has fallen below the value of the US currency, which has consequences between the two economies that need to be analyzed.
Energy tensions between Russia and the European Union, the U.S.-China crisis over Taiwan, and the continued strengthening of the dollar as a result of the Federal Reserve’s aggressive monetary policy on rates support this trend of dollar performance at the expense of the European currency.
First of all, exports from the old continent will benefit from this situation, which creates a leverage effect of easier export conditions, including and not only to the United States, which represents for France, for example, the third most important market in volume.
In 2021, estimates of exports of French products to America amounted to 61 billion euros and this figure net of inflation can certainly grow.
While this may be an advantage for sectors such as fashion, machinery, food and wine products and mechanics, it is not so for other sectors.
The exchange rate rewards the United States, not only because of the products it sells, but also because the dollar is a benchmark currency, so most products follow suit.
Energy in general, oil and liquid natural gas, which crosses the Atlantic Ocean, will inevitably be more expensive.
The effect of parity on general economic conditions
The trade balance between imports and exports shows that France is a strong importer, especially from the United States and China. In this respect, there will therefore be no advantage for France in the end, but it will probably be slightly cheaper to make these products in France.
Tourism reflects the same picture as described above, with increasingly expensive foreign travel for Europeans, but a more favorable reverse flow that will lead Americans to make a few more visits over here.
On the financial and general market side, it all depends on how the situation develops, the exposure of each portfolio to a particular country, ETF, fund or other financial product. It will perform better if it is linked to energy products, for example, just as a financial product that has in its portfolio European stocks linked to the food or tourism sector will certainly perform better than in 2021.