Undoubtedly, we live in exciting financial times with all their pros, cons, and surprises. The economy has become quite unpredictable and volatile yet again. During these trying times, it’s essential to read between the lines and interpret economic events to see how to prepare for our future.
Perhaps, you’d like to investigate your investment prospects to take proper measures against a possible economic downturn. We suggest you seek out experienced local real estate agents. They have lots of ideas about how to invest smartly before a recession, for instance, buying a property in US cities where the 2026 FIFA World Cup will be organized.
What does the economy look like in mid-2022?
2022, the Year of the Tiger, brought us unexpected twists and turns upsetting the world order and real estate market predictions. Apparently, after 2006, we can’t avoid another painful inflation as a side effect of an economic decline. For this reason, we must be walking on eggs with our investments during the foreseeable recession.
However, we witnessed another revelation, the USD currency not only equalling the Euro but even slightly surpassing it in July 2022. Did you know that the last time these two currencies were equal was in 2002? The Euro was launched in 1999 and spent only two years at a lower value than the American dollar. So how come the USD regained its force?
We’re witnessing a brand new chapter in the USD - Euro showdown.
The news shook the financial world as the Euro dropped to its lowest in twenty years. Analysts reported that the Euro was particularly vulnerable, triggered by the Russian-Ukraine war and skyrocketing gas prices overseas. Therefore, in July 2022, the Euro was at its lowest value since 2001. Things for the Europeans will get more complicated because they must also fight against growing inflation.
And the trend seems to continue. No wonder it has given birth to countless concerns concerning an impending European recession.
Paradoxically, two ambiguous realities co-exist at the same time. While the USD gained more power internationally, the Americans’ spending power is decreasing nationally due to gradually soaring prices.
What determines the power of currencies in the United States?
The demand for a currency most usually determines its value. This is also how the value of commodities and services is set. In the United States, three main techniques define how to estimate money’s worth.
- What the currency can purchase in foreign currencies. The exchange rate measures this.
- Treasury bonds are worth their face value. These can be exchanged for dollars on the secondary market for Treasuries. When there is a high demand for treasury securities, the value or price of the US dollar rises.
- Foreign Exchange Reserves imply the amount of currency owned by foreign governments. When a foreign government keeps more currency, the supply of that currency decreases. This increases the value of dollars in the United States.
Which are the universal factors setting the value of currencies?
There are universal benchmarks and standard criteria that define a currency’s worth, including:
- Stability: The more stable a country’s economy gets, the more powerful it is. When an economy is steady, it attracts foreign investors actually to pour money into it, which can raise a currency’s strength or value.
- Economic policies: Certain economic policies can help strengthen a currency. However, this varies based on the money and the country it belongs to.
- Interest Rates: High-interest rates come in handy when you wish to develop a strong currency in your country. This is because when foreign investors conduct business with a country, they receive a more significant return on their investment.
What did the US Fed do better than other international banks?
In the meantime, the US Federal Reserve stepped up more aggressively against inflation and kept raising the interest rate. As a result, they boosted even the most secure assets, such as US Treasury bonds, and turned them into attractive investments for Europeans.
In other words, the dollar has become more appealing to foreigners to convert their money. In addition, it draws in investors from the old continent looking to receive a higher return. After two decades, the USD transformed into the so-called haven currency yet again.
How can you benefit from the Euro losing ground?
What are the implications of the Euro losing ground to the USD? Since the Euro has become cheaper, traveling abroad is worth more than ever. Besides, discovering Europe’s holiday resorts might sound like an excellent idea. In short, you’ll get more Euros for your dollars.
On the downside, Europeans can’t indulge in business opportunities, ordering goods from the US and investments to the same extent as before.
As we all know, foreign investors represent a crucial real estate niche. Besides, their investing input adds to a significant portion of the American housing market, GDP, and economic growth. However, in present circumstances, Americans may experience a slight setback in foreign investments, thus income.
How will it affect the US and international real estate market?
We pointed out earlier that foreign investments in US soil will likely slow down. The European currency losing its original value will unquestionably result in international speculation in real estate. Until now, European investors could buy American properties and land in cash upfront, thus setting the American homebuyers (who couldn’t afford cash) at a mild disadvantage.
Now, the wheels have turned, and buyers of US citizenship find themselves at an advantage since their money is worth more than the Euro.
Let’s recommend to you some excellent terrific property investments in foreign territory. Spain, Italy, and Portugal are some examples of the best international real estate markets you can buy an affordable vacation home for your American dollars.
Final thoughts
Europe, in 2022, must face numerous difficulties, such as an ongoing war and rising gas prices. Topical events had a toll on its economy, facing inflation and an impending recession. For these reasons, their currency lost value and reached parity with the US dollar. Meanwhile, the American currency has reduced its handicap due to various intelligent measures, such as increasing interest rates, a highly advantageous move for foreigners to exchange into the USD.
The consequences of this sudden drop in the Euro’s worth are yet to be seen. And so is the outcome of this battle between the two currencies. We know the USD gaining momentum resulted in cheaper real estate for American buyers abroad and pumped up their spending power in Europe. Nevertheless, foreign investors won’t be able to afford to spend so much on American territory.
We will bet on the USD in the short run if you ask. Still, in the long term, the dollar is likely to suffer from the depreciation of its European counterpart.
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