The Euro Is Heading Toward Parity With The Dollar: What You Need To Know

This week the European Central Bank kicked off its massive quantitative easing program, injecting fresh funding into the region's stalling economy. One effect of the influx of freshly printed cash has been the rapid deterioration of the single currency. Now,

we could see the euro trading at a one-to-one ratio with the dollar by the end of the year, something global leaders have mixed feelings about.

A stronger dollar is a sign of economic health for the US, but it isn't necessarily music to everyone's ears. US exporters will be hurt by the greenback's strength as their products will become relatively more expensive abroad. US multi-nationals that operate in Europe are also likely to be hurt by the parity as their euro-denominated earnings will lose value when they're brought back across the pond. Perhaps the most closely watched effect the potential parity has had in the US has been new questions whether or not the Fed can continue to tighten its policies in light of the global economic climate. With the dollar rapidly gaining ground, many worry that the US economy will suffer from a lack of exports and an increased appetite for foreign goods. A rate hike from the Fed could exacerbate those issues while also raising the risk of global deflation as commodity prices would also suffer under a stronger dollar.

The euro's decline has been beneficial to the region as it has helped boost domestic demand while also making European exports more competitive in the global market. The region's automakers have been especially celebratory of a weaker euro as it has given them a chance to beef up their US sales. However while some depreciation is good news for EU policymakers, too much has its own consequences. Many worry that the euro's loss of value will prompt investors to quickly pull their money out of Europe, creating further instability and potentially collapsing the common currency.