Euro Reaches Parity With the Dollar for the First Time in 20 Years
The Euro has just reached parity with the U.S. dollar, for the first time in 20 years, indicating that the European economy is likely to fall into recession. The euro has been struggling significantly since Russia’s invasion of Ukraine, which has led to record-high inflation worldwide and aggressive interest rate hikes by global central banks.
EUR/USD Hits Lowest Since 2022
Euro reaching parity with its U.S. counterpart comes just one day after EUR/USD touched $1.01. Now, Euro has reached the 1:1 parity with the greenback for the first time since 2002.
The drop suggests that consumers and companies based in Europe will have to pay even more for the goods and services while making European exports cheaper for other markets.
Euro has been trading above the dollar for two decades now, and now it has plummeted to $1 from $1.13 in just a few months.
While the European currency has been facing headwinds for a while now, its drop rate has accelerated over the past few weeks due to concerns that Russia – a key oil and energy provider in the region – would entirely halt gas flows in response to sanctions imposed by Western leaders.
On the other hand, the USD has been on the rise lately as investors turned away from risky assets due to numerous macroeconomic and market challenges such as rising inflation, supply chain constraints, slower economic growth, and hawkish monetary policy.
The closing of the gap between the two currencies was accelerated due to the difference in monetary policy approaches among central banks. Earlier this month, the Federal Reserve hiked benchmark borrowing rates by another half a percentage point to curb the rampaging inflation.
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German Investor Confidence Falls on Energy Supply Concerns
The latest research report by the ZEW Center for European Economic Research showed that German investors’ expectations slipped this month due to concerns over energy supply.
The survey showed that the benchmark ZEW investor expectations index declined to -53.8 in July from -28.0 last month, widely missing the consensus estimates of -38.3.
In the meantime, the current situation index slipped to -45.8 in July from -27.6 in June.
“The current major concerns about the energy supply in Germany, the ECB’s announced interest rate hike and further pandemic-related restrictions in China have led to a considerable deterioration in the economic outlook,”said Achim Wambach, President Professor of ZEW.
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