The lower euro leads to higher import costs and causes problems for local businesses. In 2022, the European currency fell below parity against the US dollar and lost more than 12% for the first time in two decades. Such a collapse ramps up import costs and damages EU firms’ financial performance. Notably, local companies are already suffering from soaring energy prices and skyrocketing inflation. With the eurozone CPI approaching 9%, EU companies see reduced demand and falling sales and profits. At the moment, Europe is highly dependent on Russian energy imports which makes the region particularly vulnerable. Natural gas supplies have already shrunk, and further cuts may hit the EU countries more severely, particularly Germany. “European equities are trading at a notable 30% discount to US stocks, reflecting these risks and the market’s greater weighting to sectors like energy and financials,” Madison Faller, global strategist at JPMorgan Private Bank, said. According to Bloomberg, the euro is near its lowest level since 2015 against a basket of global currencies.
