Image Source: CNN
The conflict in Ukraine has caused the euro to depreciate below the dollar for the first time in almost 20 years. At 12:45 GMT, the price of one euro was $0.998, down 0.4 percent from the previous day’s trading.
The likelihood of a recession in the euro area has increased due to worries that Russia would limit Europe’s access to energy. In hiking rates, the European Central Bank has trailed behind other central banks, further devaluing the euro.
When the central bank in question raises interest rates, currencies often increase as foreign investors seek a higher return for keeping assets denominated in that currency. Additionally, the dollar has been strong in recent months due to investors seeking out dollar assets as safe havens during periods of global unrest and the US central bank hiking interest rates.
For nations in the eurozone, an undervalued currency will increase the cost of imports, particularly those items priced in dollars like crude oil. The eurozone’s already-high 8.6 percent rate of inflation for June could rise even further as a result of this.
Next week, the bank is anticipated to begin raising interest rates. Since the beginning of the year, the euro’s value against the dollar has decreased by roughly 12%.
For the majority of its existence, the euro has been valued more than the dollar. It lagged behind the dollar in the years after the currency’s debut in 1999, but the last time it did so was in December 2002, less than a year after the first-ever release of euro notes and coins.
This year, the euro has declined, in part due to growing worries that the 19 countries that use it may experience a recession. The crisis in Ukraine has driven up the price of oil and gas, harming European consumers and companies.
Particularly, the recent cutback in Russian natural gas supply has driven up prices and stoked concerns about a complete shutdown that may force governments to limit energy to industry in order to protect homes, schools, and hospitals. (Leaders in Europe have condemned Moscow’s action as an attempt to intimidate Europe into supporting Ukraine and accepting Western sanctions in the wake of Russia’s invasion.)
According to economists at Berenberg Bank, the additional gas expenditure over a year would be 220 billion euros ($224 billion), or a staggering 1.5 percent of annual economic output.
The United States, the largest economy in the world, is currently facing more uncertainty as a result of the rising dollar. On the one hand, a stronger dollar lowers the price of foreign goods for Americans and lessens inflationary pressures. but only marginally.