In the historical data there have been periods with even higher interest rates then today and the euro – usd parity was not impacted.
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The Euro has gone down a little, not a lot. It’s the USD that’s going up. The war, Covid, the coming recession etc., are making people move to the USD to protect their money / some are following the trend speculating to make money. The interest rate isn’t closely aligned with the currency changes.
Generally speaking, higher interest rates (relatively) will lead to a stronger currency as people want to invest in that country (they get more bang for their buck).
But two things to consider. First is that this is entirely relative. If two countries have the exact same interest rate (and all other variables are the exact same) then their currency will have the same value. Investing in one country is no better than the other so they have equal demand for their currency.
Second is that there’s a lot that goes into currency value. Consider the two countries that are exactly identical except one has nightly riots with crowds looting and pillaging. Which one is better? The one with better asset security. So that countries currency is stronger as more people want to invest there.
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