Between the major energy crisis throughout Europe and the Fed, which remains on the offensive, wanting to control inflation at all costs, the euro finds no way out and loses more and more of its value. Towards the end of August 2022, the single currency reached parity with the dollar, and then, even lower than parity, 20 % below its average for 20 years. In this article, we will explain to you how this depreciation of the euro takes place, then the reasons why it loses its value.
Depreciation of the euro: how does it really happen?
This huge loss in value of the euro is mainly caused by the economic and energy crisis resulting from the invasion of Ukraine by Russia. If in 2002, the euro was worth 0.8895 dollars, it was very successful for several years, if we would only mention the time when it reached its all-time high by passing above the 1.60 dollar bar, c was July 15, 2008.
However, this year it has lost a lot of its value. In mid-July 2022, the euro reached parity, then fell below parity. Then, last month, more precisely, on Monday August 22, the single currency rose to 0.9951 dollars. It is a figure that is talked about around the world.
The depreciation of the euro has serious repercussions on economic growth, as well as on the lives of individuals and businesses
What are the main causes of the fall of the euro?
The fall of the euro is the result of 3 specific factors:
- Inflation;
- Recession fears;
- The war at the gates of Europe.
Inflation significantly affects the energy and raw materials sectors. Economic growth is thus greatly slowed down. According to the results of the PMI surveys of recent months, economic activity in the euro zone has experienced a remarkable slowdown since June 2022 and has even reached its lowest level.
In addition, there is the situation in Ukraine which rhymes with economic crises that can be prolonged. Recession fears therefore become more than evident. All this makes the euro continue to lose its value, unlike the dollar which continues to climb. The monetary policy of the Federal Reserve of the United States (Fed) is stimulating the rise in key rates for the dollar. An increase ranging from three-quarters of a point since mid-June, right when the euro was in full depreciation.
Moreover, the European Central Bank (ECB), having fallen behind on the rise in its interest rates, is easily overtaken by the Fed to continue to raise its own. The ECB is currently in a very difficult situation. The risk of recession hanging over Europe is encouraging investors to turn to the dollar. This problem is likely to worsen if the energy crisis persists.
According to Lee Hardman, foreign exchange specialist at MUFG bank, the euro may settle permanently below the dollar and oscillate between 0.95 and 1 until the end of 2022.
