On Wednesday, July 13, the euro’s value dropped below the psychologically important US dollar parity level for the first time since 2002, when it fell to $0.99.
The reason behind this drop was the Russia-Ukraine war. Namely, the war has exacerbated an energy crisis and, if nothing is done, might result in a deep recession.
What’s more jaw-dropping is how quickly the Euro has declined in value. The currency, which is used by many European countries, has fallen over 11% so far, while the dollar’s strength has been nearly unrivaled.
As the war has put Europe’s political and economic stability to the test, many events have worked against the euro and supported the US dollar, which has reclaimed its position as a safe haven during financial chaos.
On top of that, the likelihood of a recession has been exacerbated by Covid-19 restrictions, the rise in gas prices, and Europe’s efforts to find a replacement for Russian gas. These factors have aided the dollar’s rise while offering no support to the Euro.
The president of the European Central Bank, Christine Lagarde, outlined a strategy to raise interest rates for the first time in 10 years. She suggested that the eight-year period of negative interest rates would come to an end by early fall.
While the European Central Bank prepares to raise interest rates, it must also monitor national bond markets. The impact of rising interest rates is a cause for concern, as well as the end of bond-buying programs of the central bank on Europe’s most indebted nations.
