Euro trails dollar for first time in 20 years

The euro has dropped below the dollar for the first time in about 20 years as the Russia-Ukraine war pushes the single currency down.

A single euro bought at $0.998 on the foreign exchange market on Monday, down by 0.4 per cent in the day’s trading, according to a Daily Trust report.

Both currencies reached parity on Tuesday, July 12.

As of last week Tuesday, 1 EUR equalled 1 USD. The shift means European companies and consumers will pay more for the goods and services they import, while European exports become immediately cheaper in international markets. The euro has experienced a dramatic loss of value since early February when it was worth over $1.13.

It comes as the European Union has seen inflation exacerbated by Russia’s invasion of Ukraine.

The EU and US sanctions have reduced the flow of Russian oil into Europe, and the currency block is much more dependent on Russian energy than the U.S.

Fears that Russia may restrict Europe’s supplies of energy have increased the chances of a recession in the euro area.

The European Central Bank has lagged other central banks in raising rates, further weakening the euro.

Currencies tend to rise when the relevant central banks increase interest rates, as international investors eye larger returns for holding assets priced in those currencies.

The dollar has also been strong in recent months, buoyed by the US central bank raising interest rates and investors seeking the haven of dollar assets in times of global turmoil.

A weakening currency will make imports more expensive for eurozone countries, especially goods priced in dollars such as crude oil.

That could contribute to even higher inflation in the eurozone, which is already running at 8.6 per cent for June.

Daily Trust quoted a spokesperson for the ECB as saying it did 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.”

The bank is expected to start increasing interest rates this week.

The euro has fallen almost 12 per cent against the dollar since the start of the year.

The single currency has been worth more than the dollar for most of its history. It lagged below the dollar in the years following its launch in 1999, but the last time it traded below the dollar was December 2002 – less than a year after euro notes and coins were introduced for the first time.

Trends Admin