over 1 year ago • 3 mins
The euro fell to its lowest level against the US dollar in two decades on Tuesday.
What does this mean?
The US Federal Reserve (the Fed) and the European Central Bank (the ECB) have taken two very different approaches to inflation in the last few months. The Fed’s opted to raise rates by 1.5% this year, and markets are pricing in another 0.75% later this month. The ECB, meanwhile, is taking a softly-softly approach: the central bank hasn’t even started hiking rates, and a string of weak economic data has traders betting that it’ll raise them just 1.4% this year when it eventually does.
This divergence has had a knock-on effect on the countries’ respective currencies, as the prospect of higher interest rates in the US makes the greenback more attractive to international savers and investors. Ipso facto: the euro has dropped to its weakest level versus the US dollar since 2002, and Bloomberg analysis suggests there’s now a 60% chance that they’ll reach parity by the end of the year.
Why should I care?
The bigger picture: Keep an eye out.
This dynamic will probably get a mention when US companies report their quarterly earnings over the next few weeks. On the one hand, it makes European imports cheaper, reducing the firms’ costs on that front. But it also makes US companies’ exports more expensive for their European customers, which means they risk losing business to cheaper rivals. What’s more, any US firms with a big European presence – think Coca-Cola and Ford – will have found those sales worth less once they were converted back into dollars.
For you personally: How about a road trip instead?
This news might alter your vacation plans too. If you’re an American with aspirations of traveling Europe, now’s the time: you’ll get a lot more for every dollar you spend over there. But if you’re a European who wants to visit the glittering bastion of democracy in person, it’ll cost you.
Keep reading for our next story...
China’s BYD overtook Tesla as the world’s biggest EV maker by sales this week.
What does this mean?
Only a handful of BYD’s factories are based in regions that suffered from China’s most severe lockdowns, which allowed the carmaker to press ahead even as rivals Tesla, Xpeng, and Nio struggled. That enabled BYD to sell 641,000 EVs in the first six months of this year – up more than 300% from the same time in 2021, and 14% more than Tesla managed in the same period. In fact, the Chinese company has now officially dethroned the American EV maker as the world’s biggest in terms of EV sales. And as if to prove a point, BYD overtook South Korea's LG Energy as the world’s second-biggest producer of EV batteries too.
Why should I care?
For markets: There’s a reason Buffett’s bought in.
BYD is backed by the one and only Warren Buffett, and this might be why: the company is different from other EV makers insofar as it self-produces a lot of the parts that its rivals need suppliers for. It’s planning to become directly involved with the mining of lithium too, which will prove useful as batteries become harder to come by. That might be why BYD’s stock is up around 70% from its March lows, and why it’s on track to join an exclusive crew of Chinese stocks that have hit a market value of 1 trillion yuan.
The bigger picture: Made in China, by China.
BYD’s rise underscores China’s rapidly growing car industry, which has benefited as its EV makers have turned their focus onto exports: they shipped twice the number of cars last year than they did the year before. But analysts think there’s a lot more room to keep building on this momentum, with just 2% of Chinese car exports into Europe last year coming from homegrown brands.
european central bank
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