The European Union currency hit its lowest level in 20 years and expectations of more losses
The value of the euro, the single European currency, fell during trading yesterday, Tuesday, to reach one dollar, at a level not recorded since the year the single currency was introduced into circulation twenty years ago.
The euro recorded 0.999 against the dollar at 10:14 GMT in trading yesterday, the lowest level since December 2002, before rising slightly again. This is in light of the risks posed by cutting off Russian gas supplies to the European economy.
The parity of the level of the American and European currencies opened a debate in the market yesterday about: which of the two currencies moved against the other, was the euro the one that fell or the dollar that rose?
The dollar rose or the euro fell?
Looking at the dollar index, which measures its performance against the basket of major currencies: the euro, the pound, the yen, the yuan and the Swiss franc, we find that the index rose to its highest level in 20 years, which indicates that the US currency rose against all other currencies.
The appreciation of the dollar usually affects all prices of commodities and other currencies, because it makes dollar-denominated commodities more expensive for holders of other currencies.
It is expected that the inverse relationship between the value of the euro and the dollar will be reflected on European consumers, as the lower the exchange rate of the single European currency, the stronger other currencies such as the dollar will become, and then the value of goods coming to the eurozone will rise, which will exacerbate inflation.
However, the question that arises now is: Why did this happen the day before yesterday and yesterday, with expectations that this performance will continue.
Ricardo Evangelista, currency analyst at ActivTrades Financial Brokerage Company, answers to Asharq Al-Awsat via an e-mail: “Now the complete disruption of Russian gas has become a realistic possibility, a scenario that will compound the energy crisis in the entire continent, which increases the possibility of economic recession in the region.” euro”.
“In light of these headwinds, the single currency remains under pressure and exposed to more losses, especially against the US dollar,” Evangelista added.
He expected that the dollar would soon become more valuable than the euro, given the deteriorating outlook for the European economy, while the US Federal Reserve continues its determination to control inflation through strict monetary policies.
In front of this performance of the single European currency, European shares continued their losses for the second consecutive session during trading yesterday, Tuesday, affected by fears of a lack of energy supplies, while the high infections with (Covid-19) in China exacerbated fears of a global economic recession.
The decline included most sectors such as healthcare, technology and luxury products. The oil sector made small gains.
Risky assets are going down
Pierre Verrett, stock analyst at ActivTrades Financial Brokerage Company, told Asharq Al-Awsat that European stocks continued to decline yesterday, following Asian indices and US futures, as caution prevails in the markets. He added, “Cash finds its way to safe havens today (yesterday), in a mechanism that supported the dollar and yen currencies, while treasury bonds also recorded gains.”
He pointed to continued pressures on the euro, “as a result of the European Central Bank standing still with regard to its monetary policies, while equity investors are facing frustration due to increasing price pressures, especially the ongoing energy crisis.”
“On the other hand, investors’ appetite for riskier assets is declining due to the possibility of a return to the general closures in China, while traders are preparing for the incomplete results of US companies as a result of the potential negative effects of the rise in the dollar on the company’s earnings,” Verrett said.
He expected no major moves in European trading before the release of the US consumer price index and the release of the Federal Reserve’s report to assess the economy today, Wednesday, indicating investors’ focus on the German ZEW index of economic confidence, in addition to the short-term energy forecasts that the Energy Information Administration will release later today. .
Meanwhile, eurozone finance ministers failed again to choose a new head of the bloc’s financial rescue fund. Ministers need to agree on a successor to Klaus Regling, who will retire in October after leading the European Stability Mechanism since its creation in 2012 in the midst of the euro zone debt crisis.
– Euro Croatia
Croatia is set to start implementing the use of the euro from January 2023 after completing final legal steps in Brussels on Tuesday to adopt the European Union’s single currency. “European integration continues despite the challenges we face,” Croatian Finance Minister Zdravko Maric said in a press conference, referring to the growing European economic crisis. Croatia’s entry into the eurozone with the support of the European Commission and the European Central Bank comes after the country met key convergence criteria, and is the first country to be accepted into the single currency area since Lithuania joined in 2015. Member states of the 27-member European Union are obligated to use the euro, But it requires a low government deficit, along with stable inflation and exchange rates between its national currencies and the euro. Croatia’s acceptance expands the eurozone to 20 members, but comes on the heels of a drop in government support in the country, as people fear higher prices as a result.
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