July 14, 2022
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 % 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, a weakened currency will increase the cost of imports, particularly those items priced in dollars such as crude oil. The eurozone’s already-high 8.6 % rate of inflation for June could rise even further as a result of this.
The ECB does not “target a particular exchange rate. However we are always attentive to the impact of the exchange rate on inflation, in line with our mandate for price stability,” according to a spokesman for the institution. 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.
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