The two currencies reached parity on Wednesday morning, according to Bloomberg, after the euro lost sharply in value following the release of alarming US inflation data.
The euro has been losing ground against the dollar since the start of the year, when it hovered around $1.13, well below its peak of nearly $1.60 in 2008. The current currency data provided by MarketWatch shows that the euro fell only a few hundredths of a cent higher. dollar, while Bloomberg and Reuters reported that the euro briefly slipped below the dollar in value.
The euro is almost equal to the dollar. That’s why it’s important.
Analysts say the depreciation of the euro reflects growing risk aversion on the part of investors who invest in dollars, considered a safe haven asset relative to other currencies, amid inflation worries, the war in Ukraine and fears of a recession in numerous countries.
Currency markets were rattled on Wednesday morning when the US Bureau of Labor Statistics reported that US prices rose 9.1 percent in June from a year ago, marking a fresh 40-year high for inflation.
The common currency in the 19 member states of the European Union has weakened during the months-long war in Ukraine, which shook the world markets for food and energy resources. The European Central Bank is also lagging behind peers like the Federal Reserve in the fight against rising inflation, which surged to 8.6 percent last month, the highest level since the euro was created in 1999.
The Fed is aggressively raising interest rates to stem inflationary concerns, announcing three rounds of hikes this year alone and signaling four more planned rate hikes are in the works. While the European Central Bank is also expected to raise rates to bring inflation back to its 2 percent target, it is likely to move at a slower pace: it has scheduled a 0.25 percentage point rate hike in July, while the Fed, as many expect to go with an increase of 0.75 percentage points, as was the case in June.
A stronger dollar is good news for Americans planning a holiday in Europe or shopping abroad. Conversely, travel and spending in US dollars has now become more expensive for those who earn wages in euros.
European businesses that sell their goods abroad may find that a weaker currency makes their exports more attractive because the buyer’s currency will be more valuable relative to it. US companies, on the other hand, may find it difficult to export their products overseas.
But more importantly, some experts argue that a weaker euro portends slower economic growth in Europe. “It is becoming increasingly clear that the eurozone is headed for a recession, even as financial conditions have tightened more than in the US or Japan,” tweeted Robin Brooks, chief economist at the Institute of International Finance.
Following the outbreak of war in Ukraine, the Economist Intelligence Unit revised down its Eurozone growth forecast for 2022 from 4 percent to 2 percent. He predicts a growth rate of 1.6 percent for 2023. And the weakness of the euro “reflects investors’ fears about a looming recession in the euro area,” said Agatha Desmarais, director of global forecasting at the EIU.
Shares were volatile on Wednesday after the inflation report. The Dow Jones Industrial Average fell almost 450 points after the release of the data and then cut its losses. By late morning, the blue-chip index was down 115 points, or 0.4%. The broader S&P 500 fell 0.1%, while the high-tech Nasdaq rose 0.3%. The French CAC 40 shed 1.2%, while the German DAX shed 1.7% and the pan-European Stoxx 50 shed 1.5%.
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