WHAT EURO PARITY WITH THE DOLLAR MEANS FOR LUXURY GOODS 07.15.22
On Tuesday, July 12, the euro reached parity with the American dollar, hitting a low of $0.998. The euro has not been equal, let alone dipping below parity with the dollar, since December 2002.
The euro tanking to the current value of $1.0018 has exacerbated fear of a recession. The European currency was successful in bouncing back after pandemic challenges, but the war in Ukraine and increased gas prices have led to a 5% decline in the value of the euro since the start of the invasion. Meanwhile, the looming threat of Russia withholding more gas and resources from European nations has incited panic. This possible outcome holds significant financial weight, as the European Union obtained 40% of their gas from Russia prior to the invasion. The struggle of finding alternative resources to Russian pipelines has proved to be a challenge that paints a grim picture for European economies.
Eueopeans traveling to the U.S. or importing American goods will experience higher prices, but Americans will benefit from this parity in currency. A strong dollar means purchasing and importing European goods will be less expensive. Many of the world’s luxury houses operate in the European Union and work in euros. According to CNBC, this means that Americans traveling to one of the 19 European Union countries that accept the euro are essentially getting a 15% discount on purchases.
This exchange rate change will boost the use of V.A.T., or “Valued Added Tax”. When consumers spend over a certain threshold at one store, they may request a tax refund and shop duty-free! This is commonly used for designer purchases and luxury fashion goods.
Although this historically low value of the euro presents many challenges for European economies, the luxury fashion industry may see a significant boost in consumption from Americans.