The two currencies reached parity on Wednesday morning, according to Bloomberg, after the euro suddenly lost value in the wake of the release Worrying US inflation data.
The euro has been losing ground against the dollar since the beginning of the year, when it was hovering near $1.13, far from its peak of around $1.60 in 2008. Live currency data published by MarketWatch shows that the euro is slipping just a few hundred percent above the dollar, while Bloomberg reports Reuters reported that the euro briefly fell below the dollar in value terms.
Analysts say the euro’s depreciation reflects a growing risk aversion on the part of investors, who are flocking to dollars – considered a “safe” asset compared to other currencies – amid concerns about inflation, the war in Ukraine and fears of a recession in many countries.
Currency markets were rattled Wednesday morning when the US Bureau of Labor Statistics reported that prices in the US rose 9.1 percent in June from a year ago, a new peak with inflation hitting a 40-year high.
The single currency in 19 European Union member states weakened during the months-long war in Ukraine, which sent shock waves into global food and energy markets. The European Central Bank is also lagging behind peer institutions like the Federal Reserve in addressing rising inflation, which ballooned to 8.6 percent last month – the highest level since the euro was created in 1999.
The Federal Reserve has been aggressively raising interest rates to stem inflation problems, after announcing three rounds of increases this year alone, and noting that four more rate hikes are in the works. Although it is also expected that the European Central Bank To raise prices To bring inflation back to the 2 percent target, it is likely to move at a slower pace: It started raising rates by 0.25 percentage points for July, while the Fed is widely expected to go with a 0.75 percentage point increase, as it did in June.
A strong dollar is good news for Americans who are considering a vacation in Europe or buying goods abroad. Conversely, travel and spending in US dollars has become more expensive for those who are paid in Euros.
European companies selling their wares abroad may find that a weaker currency makes their exports more attractive, because the buyer’s currency will be more valuable by comparison. On the other hand, American companies may have difficulty exporting their goods abroad.
But more importantly, some experts argue that a less strong euro heralds a slowdown in Europe’s economic growth. “It is becoming increasingly clear that the eurozone is heading into a recession, even as financial conditions tighten more than the United States or Japan,” chirp Robin Brooks, chief economist at the Institute of International Finance.
After the outbreak of war in Ukraine, the Economist Intelligence Unit revised the Eurozone growth forecast for 2022 from 4 percent to 2 percent. It expects a growth rate of 1.6 percent for 2023. The weakness of the euro “reflects investors’ fears of an imminent recession in the eurozone,” said Agathe Demari, director of global forecasting at the Economist Intelligence Unit.
Stocks were volatile on Wednesday after the inflation report. The Dow Jones Industrial Average fell about 450 points after the data was released, then trimmed 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 Nasdaq technology index rose 0.3 percent. The French CAC 40 lost 1.2 percent, the German DAX lost 1.7 percent, and the European Stoxx 50 lost 1.5 percent.
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