So far this year, the price of the euro has fallen sharply, so much so that, on July 13, it reached its lowest estimate in 20 years and came to trade at $0.998; and on July 15 its valuation reached parity with the dollar for the first time in two decades, having the same value.
However, the euro has recovered a bit of ground since Friday July 22, when it had a exchange rate of US$1.0230, according to the EFE agency. These fluctuations in the price of the currency against the US currency have repercussions on Latin Americaespecially in business relationships.
In relation to the local currency (the Peruvian sol), the day that both currencies reached parity, they were both quoted at S/ 3,935. However, for the closing of the last day of Monday, July 25, the dollar stood at S/ 3.9130 and the euro at S/ 4.001. Even so, the Central Reserve Bank of Peru (BCRP) reported that, so far this year, the price of the European currency has fallen by 13.41%.
Meanwhile, the markets in the world are waiting for the Federal Reserve of the United States (Fed), which could apply a new increase in its interest rate this Wednesday to try to curb the high rates of inflation in the North American country.
Why is the euro falling against the dollar?
The war between Russia and Ukraine is one of the main factors that explains the weakening of the euro, explained the economist Juan Carlos Odar. “Russia has been credibly threatening that it will block or prevent gas supplies to Europe,” the specialist said.
Likewise, an increase in inflation has been observed in many consolidated economies and emerging countries. This price increase Europe, Latin America Y USA it is around 9% and 10%”, stressed Melvin Escudero, an economist at the Universidad del Pacífico. Such increases result in the growth of interest rates.
Last week, the European Central Bank (ECB) announced an increase in interest rates, the first in the last 10 years. “The interest rate with the pandemic in Europe went to zero. But they have announced that they are going to rise, starting next week, to 0.5%”, continued Escudero. These changes come “as a way to compensate for what the United States does,” said the expert.
Which people and groups benefit from the fall in the price of the euro?
The commercial dynamics between Peru Y Europe could be modified by the fall of the European currency. “With a weakening of the euro, it becomes less attractive for them to buy products from abroad. But they begin to sell to the rest of the world”, says Odar, director of Phase Consultores.
Therefore, it would be favorable to buy imported products of Europe. “To buy a product for one euro (before) we needed a little more than a dollar. Now that product of one euro costs one dollar. It is no longer so expensive for us”, explained Odar in this favorable scenario for imports from the Eurozone.
In addition, these changes in the value of currencies favor Peruvians who plan to travel to the Old Continent. “One of the benefits is that you can Travel to Europa and it will be 20% cheaper,” said Melvin Escudero, president of Dorado Investment.
Who is harmed by the decline in the European currency?
On the other hand, Peruvians who receive remittances in euros, since their purchasing power would be reduced. “Let’s say, a person who received 600 euros had a purchasing power of more than US$600 —they were like US$720; now it’s only US$600—”, points out Juan Carlos Ordar.
Similarly, Peru’s exporters would see trade with Europe diminished. “Since the dollar is our reference currency in exports, it happens that all the products that the Peru exports to Europe they are expensive”, Melvin Escudero specified. This is a point of concern, since the Eurozone “is the second most important destination for traditional and non-traditional (Peruvian) exports,” the expert remarked.