Ronan Costello: Euro-dollar parity compounds inflation worries

As a result of the Federal Reserve’s actions, the yield gap between the US and Europe has widened dramatically and this is the main reason the dollar has significantly outperformed the euro over the last 12 months, writes Ronan Costello.

A 2016 study conducted by the ECB themselves into the link between inflation and exchange rates, notes the particular importance of the euro’s relationship with the dollar. Picture: Hannelore Foerster/Bloomberg via Getty Images

Last week, the euro traded at parity against the US dollar for the first time since 2002. This is an unwelcome development for Irish consumers and for the ECB, as it exacerbates an already intensifying inflation problem.

As the eurozone is a large net importer of commodities, which are priced in dollars, the EUR/USD exchange rate is by far the most important one for the ECB.