How Does the Russia-Ukraine Conflict, and the Fall of the Euro, Affect the Dollar? [Part 2]

The Russia-Ukraine conflict has strained the World and European Economy, especially with the Euro. How will the dollar fare?

(Image Credit: Reuters.com)

Global geopolitical risks have soared since Russia’s invasion of Ukraine. Investors, market participants, and policymakers expect that the war will exert a drag on the global economy while pushing up inflation, with a sharp increase in uncertainty and risks. Some of the already seen effects of this war include food and fuel shortages and an acceleration of inflation. Not only that, but the war has rattled investors, plummeting almost all sectors of the stock market into a downward spiral. While this outcome was guaranteed to eventually happen due to the significant increase in printed currency throughout covid, the war certainly helped accelerate the process.

With a war waging in Europe, an uncertain energy supply from Russia, and a growing recession risk, the Euro could not handle the pressure and dropped, hitting parity with the U.S. dollar. This one-to-one exchange rate has not been seen in over 20 years.

With the United States having more buying power over the Euro, European goods and exports are cheaper than ever before, at least in the past couple of decades. In turn, U.S. imports would rise due to more affordable European products. U.S. goods will also become more expensive to other nations as U.S. exports fall due to the increase in price. However, due to the impending recession concerns and the downturn in the market, the U.S. and the entire global economy have less financial spending power; therefore, the standard currency appreciation and stabilization process might not happen in the standard way. Due to these very legit concerns, we might see an overall downward trend in exports and imports in the U.S. rather than an inverse trend that is usually shown.

However, one thing is for certain; this radical economic outlook gives yet another incentive for European and global investors to invest in USD, especially with how much better it is doing over the Euro. During times of impending or imminent recession, foreign investors looking to invest into USD as it is considered the most stable and secure currency in the world. The war in Ukraine, alongside the Euro hitting parity with the dollar, makes this reality even more evident.