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On Wednesday, July 13th, for the first time in two decades, the United States Dollar and the Euro had a one-to-one exchange rate and since then not much has changed. With the crazy economic start to 2022, the Dollar has managed to appreciate against the Euro to the strongest it has been since the turn of the century. Following massive interest rate hikes by the U.S. Federal Reserve, the Dollar is looking quite a bit stronger than the Euro.
This has a massive potential impact on the U.S. import/export business. When the dollar appreciates against a foreign currency, Americans buying foreign products with dollars are getting a huge discount. This is because during the foreign currency exchange process, dollars are now worth more than Euros.
This means that to buy a European product, Americans are getting a roughly 15% discount compared to recent years. In the import business, Americans have never been in a stronger position to buy products from the EU.
In the export business, however, the same is not true. When the dollar appreciates and allows Americans to get discounts, the opposite is true for foreigners buying U.S. products. European consumers must now pay essentially a 15% markup for American products. This means that for American exporters, consumers in the EU will likely have a harder time affording what were once affordable products.
This phenomenon is not unique to just the EU. As the U.S. continues to raise its interest rates, it is likely that the U.S. dollar will continue to appreciate against foreign currencies whose government are not raising rates at the same speed.
Anyone in the import/export business needs to keep a sharp eye on currency rates through the rest of 2022 and most likely 2023 as the U.S. Federal Reserve continues to raise interest rates. Need help monitoring the potential impact of currency rates on your import/export business? Do not hesitate to contact us for assistance.
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