One euro can only buy one dollar.

One has to go back almost 20 years in history to find a similarly low valuation of the euro against the American currency.

On the one hand, the depreciation of the common currency makes exports cheaper and could thus help to support the weak economy in the monetary union a little.

However, experience shows that such effects should not be overestimated.

In return, the devaluation of the common currency contributes to the inflation, which is already far too high, because it makes the raw materials, which are settled in dollars on the world market, even more expensive.

Gerald Braunberger

Editor.

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To put it bluntly, with a stronger euro, inflation would be at least a little lower.

The depreciation of the euro leads to poorer exchange relationships in foreign trade.

In order to pay for a certain amount of imported goods, the eurozone economy has to export more than it used to.

The devaluation of the euro is not a cause for celebration. It doesn't make Europe richer, but poorer.

Anyone looking for the causes will come across an interesting finding: the euro is particularly weak against the dollar, but it is holding up well against many other currencies.

This can be seen in the development of the so-called trade-weighted exchange rate of the euro.

It shows performance not only against the dollar, but against a bunch of currencies from countries with which members of the European Monetary Union do foreign trade.

The weakness of the euro is a strength of the dollar

And this shows that the euro has depreciated less in comparison to this bundle of currencies than in relation to the dollar alone.

This leads to an initial insight: the weakness of the euro is not least due to the strength of the dollar.

This is also confirmed by a look at the value development of the dollar against a large number of currencies: the dollar has been appreciating in many places for some time – against some currencies even more than against the euro.

There are both political and economic reasons for this remarkable strength of the dollar.

They also give initial indications that this strength will probably only remain a temporary phenomenon.

In fact, there are estimates from a whole range of financial institutions that predict that the dollar will weaken again and the euro will strengthen again in the coming years.

A few weeks ago, the chief economist at Deutsche Bank, David Folkerts-Landau, predicted a “renaissance of the euro” in an article for the Frankfurter Allgemeine Zeitung, which would take 18 to 24 months to exchange rates of 1.35 to 1. 40 dollars for one euro could result.

The political reason for the strength of the dollar is obviously the high level of uncertainty about further political and economic developments in the world.

Especially in times of significant political uncertainty, given the eminent political, military and economic power of the United States, the dollar becomes a safe haven for investors from all over the world.

This flight of capital is favored by the unique liquidity of the American financial markets: anyone who wants to buy American government bonds, which are considered particularly safe, will always find a seller.

From this position of power, the Americans have developed a business model that allows them to have high current account deficits financed by foreign capital for decades and at the same time still achieve positive returns in international capital transactions.

The process goes like this: Compared to many other investments, the USA provides low-yielding government bonds that are bought by foreigners.

When it comes to their own investments abroad, Americans tend to prefer corporate investments and real estate.

These investments are subject to short-term yield fluctuations;

over the long term, however, their yields far exceed those on US Treasuries bought by foreigners.