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For the first time in two decades, the US dollar equals the value of the euro as Europe struggles with growing fears of recession and the aftermath of Russia’s war in Ukraine.
According to some experts, the adjustment or fall of the euro below the dollar represents a mainly psychological milestone, but central banks and policymakers across the European bloc are likely to face pressure to address the problems of depreciation.
The two currencies reached parity on Wednesday morning, according to Bloomberg, after the euro suddenly lost value after worrying US inflation data.
The euro has been losing ground against the dollar since the beginning of the year, when it stood near $ 1.13, far from its high of nearly $ 1.60 in 2008. Live currency data reported by MarketWatch show that the euro fell only a few hundredths of a cent above. the dollar, while Bloomberg and Reuters reported that the euro fell briefly below a dollar in value.
The euro is almost equal to the dollar. Here’s why it’s important.
Analysts say the collapse in the value of the euro reflects a growing aversion to risk, which is poured into dollars, considered an asset of “safe haven” compared to other currencies, amid concern about inflation, the war in Ukraine and fears of recession. in many countries.
Currency markets were shaken on Wednesday morning when the U.S. Bureau of Labor Statistics reported that U.S. prices soared 9.1 percent in June compared to a year ago, a new peak with inflation in highs of 40 years.
The common currency of 19 EU member states has weakened during the months-long Ukrainian war in Ukraine, which has caused shock waves in world food and energy markets. The European Central Bank is also lagging behind similar institutions such as the Federal Reserve in tackling rising inflation, which rose to 8.6 percent last month, the highest level since that the euro was created in 1999.
The Fed has aggressively raised interest rates to curb inflation problems, after announcing three rounds of hikes this year alone and has indicated there are four more scheduled rate hikes. While the European Central Bank is also expected to raise rates to bring inflation back to a 2 per cent target, it is likely to move at a slower pace: it has forecast a 0.25 per cent rise in interest rates. in July, while the Fed is expected to go. with a 0.75 percent increase, as it did in June.
The strengthening dollar is good news for Americans considering spending a European vacation or buying goods abroad. By contrast, traveling and spending in U.S. dollars have become more expensive for those earning wages in euros.
European companies that sell their goods abroad may find that the weaker currency makes their exports more attractive, because the buyer’s currency will be more valuable in comparison. American companies, on the other hand, could face a more difficult time exporting their products abroad.
But more importantly, some experts argue that a less powerful euro predicts slower economic growth for Europe. “It is becoming increasingly clear that the eurozone is entering a recession, although financial conditions have hardened more than in the US or Japan,” tweeted Robin Brooks, chief economist at the Institute of International Finance. .
After the war in Ukraine began, the Economist Intelligence Unit revised down its eurozone growth forecast for 2022 from 4% to 2%. It predicts a growth rate of 1.6 percent by 2023. And the weakness of the euro “reflects investors’ fears of an impending recession in the eurozone,” said the director of global forecasts of the euro. ‘EIU, Agathe Demarais.
Shares were volatile on Wednesday following the inflation report. The Dow Jones industrial average fell about 450 points after the release of CPI data, and then reduced its losses. Late in the morning, the blue-chip index was down 115 points, or 0.4 percent. The broader S&P 500 index fell 0.1 percent, while the high-tech Nasdaq rose 0.3 percent. France’s CAC 40 lost 1.2 percent, while Germany’s DAX index lost 1.7 percent and pan-European Stoxx 50 lost 1.5 percent.