From Deutsche Welle: As the euro dashes toward parity with the US dollar, currency traders say the slide is unlikely to stop there. While a weakened euro should worry European consumers, US travelers visiting Europe could benefit. The euro has taken a major beating against its US peer since Russia’s invasion of Ukraine in February, falling to its lowest level in 20 years as surging gas prices and uncertainty around the Russian energy supply stoke recession fears in the eurozone.
So, if you are a traveler like me, perhaps it is a great time to stock up on some Euros. I generally take about $1000 USD worth of Euros on each trip.
Why is the euro falling?
The general worsening of the eurozone’s outlook amid soaring gas prices and fears of Russia cutting off gas supplies is dragging down the shared currency. The oversized reliance of major economies such as Germany and Italy on Russian gas has left investors unnerved with economists forecasting a much quicker and more painful recession in the euro area than in the US.
Added to that is the difference in interest rate levels in the US and the eurozone. The US Federal Reserve has been raising interest rates aggressively to bring down inflation, while the European Central Bank (ECB) has so far resisted steep hikes.
“The interest rate in the US is expected to go up to 3% versus 1% in Europe. So, the money would go to the place with a higher yield,” Carsten Brzeski, chief economist for Germany and Austria at ING, told DW.
The US dollar is also benefiting from its safe-haven appeal. Amid all the gloom and doom and uncertainty around the global economy, investors are taking comfort in the relative safety the dollar offers being less exposed to some of the big global risks right now.
What is dollar parity and why is it a big deal for the euro?
Parity basically means that $1 buys E1. It is nothing more than a psychological threshold for market participants who are well-known for their fondness for round figures.
Having been in Europe three times in the last 14 months, I can tell you that Europeans love cash. Euros were preferred over credit cards and US dollars. But I have a feeling this is no longer true. For that reason, I always carry about $500 US dollars in small denominations ($5’s $10’s, and $20’s. I may increase that amount to $1000 on my next trip.
You might say that $2000 in case is a large amount to carry. I prefer to be ready!