Brussels, 14 July 2022
The euro was last at parity with the dollar 20 years ago, in November 2002. So, this is an event of some economic significance and not representative of the euro’s value relative to the dollar. The US and euro-area monetary policy cycles are not in sync currently, with US rates rising much faster than in the euro area, thus boosting the value of the dollar. Therefore, this process has been driven primarily by the dollar appreciating, rather than the euro falling.
Irrespective of the reasons that have led to parity, has the euro area lost competitiveness?
While the nominal effective exchange rate has reached uncharacteristically low levels, the effective exchange rate, which is a measure of competitiveness, has not. In fact, the levels now are only cyclically lower from a very stable trend since before the financial crisis. So, the level of competitiveness in the euro area has not reduced in ways that indicate a structural loss of competitiveness.
Should the exchange rate be the target of policymakers?
Maria Demertzis is the interim director of Bruegel.