The euro has surpassed $1.20 for the first time in over four years, driven by the US dollar’s decline and the impact of Donald Trump’s presidency. This surge follows the US president’s statement that the dollar “is doing great,” despite its recent decline. The euro’s rise has significant implications for households and businesses across the eurozone.
A stronger euro benefits households by increasing their purchasing power, as many imports, including oil and raw materials, are priced in dollars. This makes imports cheaper, boosting consumption and tourism abroad. According to John Plassard, investment strategy head at Cite Gestion Private Bank, “A stronger euro supports the purchasing power of European households, boosting consumption and tourism abroad.” This, in turn, benefits import-reliant companies, such as those in the chemicals, construction, aviation, and energy-intensive industries.
However, the stronger euro is a headwind for exporters, particularly in the automotive, machinery, and capital goods sectors. Germany, which relies heavily on exporting industrial equipment and vehicles, is particularly exposed. The country is already facing a 15% tariff on its exports to the United States, introduced under a deal sealed in July. Luxury brands like LVMH are also under pressure, facing demand challenges.
The European Central Bank may consider further rate cuts due to the stronger euro, which could push inflation down. This could make credit cheaper for households and businesses. The rise of the euro also boosts the appeal of European debt, potentially allowing European states to enjoy lower borrowing costs, similar to the “exorbitant privilege” long held by the United States.
The euro’s gain is attributed to the dollar’s decline, which has been fueled by investors’ concerns over the US’s unpredictable policy mix, including military and tariff threats, and pressure on the Federal Reserve to cut rates. In contrast, Europe appears to be a zone of relative institutional stability, making it a more attractive investment destination. As the euro continues to rise, it is essential to monitor its impact on the global economy and the potential consequences for households, businesses, and investors.
