The euro has fallen below parity against the dollar the first time in almost two decades, with growing concern about rising recession risks in the euro zone continuing to have negative impacts for the embattled currency.
The euro started the year strongly as the economic zone bounced back from the Covid-19 pandemic, but the effects of Russia’s invasion of Ukraine have been felt more strongly in the euro zone than other major economies due to geographic proximity.
The euro has fallen by almost 12% against the dollar since the start of the year, and earlier today briefly fell below parity for the first time since December 2002, with one euro $0.998 on the foreign exchange market.
Critics claim that the European Central Bank (ECB) has been too slow in implementing interest rate hikes, with other central banks taking the lead and capturing larger levels of international investment.
The dollar’s status as a safe haven has also no doubt been a contributor, with fears over Russian interference with Europe’s energy supplies also leaving investors hesitant. turmoil.
A weakening currency will likely push inflation higher in the economic zone as imports become more expensive, with the figure already reaching 8.6% in June.
A spokesperson for the ECB said the bank does not have targets for specific exchange rates, but recognizes the potential impact on inflation. It is expected that the ECB will increase rates next week, although the touted 25 basis point increase is considered by many to be insufficient.