The euro crossed the threshold of parity with the US dollar, during today’s trading session, for the first time in nearly two decades, to return to a slight rise.
The first time the e-uro fell to parity with the dollar was in December 1999, and it was not yet a year since the creation of the European currency.
Yesterday, the e-uro fell to $1.005, breaking last week’s low. The last time it was this low was in 2002.
The downtrend for the European currency started quickly, once it traded around $1.15 in February. A series of increasingly large US interest rate increases boosted the dollar, while Russia’s invasion of Ukraine exacerbated the e-urozone’s growth prospects and raised the cost of its energy imports.
Why is the e-uro sinking?
An analysis by Bloomberg Agency indicated that one of the main factors of the current weakness is that Europe suffers the most from the war in Ukraine, which sparked an energy crisis and could lead to a long and deep recession. This puts the European Central Bank in a difficult position, as it tries to curb inflation and ease the economic slowdown, and aims to raise borrowing costs for the first time since 2011. Meanwhile, the US Federal Reserve is raising interest rates faster. This makes the yields on US Treasuries higher than Europe’s debt yields, driving investors to the dollar and away from the e-uro.
Moreover, according to the analysis, the dollar is benefiting from its safe haven status, which means that as the war continues and the repercussions worsen, the e-uro will continue to slide.