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I've been wondering what the economic effect of a 1:1 exchange rate for EUR/USD on the world economy. I've long found it a bit strange that historically a weak dollar is sometimes viewed as good for stocks, and sometimes it is seen as bad for stocks. A strong dollar definitely makes overseas earnings of multinationals less impressive, but has benefits such as lower gasoline prices resulting in more consumer spending. I'd imagine a 1:1 exchange rate is a bit outside of the market's comfort zone, but we've been there before when the euro was first launched back in the 1999-2000.
Parity is a meaningless concept, unless they started out at parity in the first place, and that was held to be an ideal. Imaginr parity between the USD and the Japanese Yen. Or the Indian Rupee. Or even the Chinese RMB, for that matter.
In fact, there was euro/dollar parity in late 1999 and again in 2002.
As long as dollars and euros are distinct currencies, the notion of parity between them is meaningless. A 1:1 exchange rate would be just one of thousands of possible exchange rates based on things like relative GDP, money supply, and assessments of short- to medium-term prospects for stability and economic progress. Briefly put, exchange rates are an indicator, not a condition.
The US-EU are not major trading partners as a percentage of GDP. The EUR/USD exchange rate is more a rough guage of relative money supply and fiscal and economic health of the two mega regions, but it has little to no effect on the terms of trade.
The US-EU are negotiating a free trade agreement right now and both sides estimate that the impact on GDP is miniscule, like a fraction of 1%. Such an agreement would serve more a political purpose vis-a-vis guess who.
Total US trade with Europe is about 25% larger than that with China, and US exports to Europe are much larger than US exports to China. The reason that a US-EU free trade agreement is actually being pushed when tariffs between the two are already quite low is that even a small percentage increase in trade against such a large base would make a significant difference to both sides. We are also negotiating at least a dozen other bilateral and multilateral free trade agreements, including expansion of NAFTA to cover the western hemisphere generally.
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