2023-06-17 11:33:37
The euro is reaping the benefits of raising European interest rates
The European Central Bank’s decision to finally raise interest, for the eighth time in a row, pushed the euro price to its highest level in months, as it recorded in the last transactions 1.09 per dollar, following it had fallen in September 2022 to regarding 0.95 dollars.
The single European currency has risen more than 12% since early May.
And the European Central Bank decided, the day before yesterday, Thursday, to raise the lending interest (borrowing) to its highest level in 22 years, and left the door open for further increases.
The bank’s decision included an increase in the main interest rate by 25 basis points (0.25%) to 3.5%, the highest level since May 2001.
On the repercussions of raising interest rates on the European economy and the single currency, banking expert Sonia Martin indicated that “the euro currency is used in a solid and strong economic area.”
And she added, in an interview with the German “ARD” news network, on Friday evening, that “the situation of the European currency can be likened to buying a share of shares in a company that achieves high profitability due to good investment, which is what drives an increase in demand for it.”
Regarding the factors affecting the euro’s rise, Martin confirmed that “the euro’s decline last year was due to fears of a crisis in energy supplies due to the war in Ukraine, but when it became clear that things would not be that bad, the currency rose once more.”
According to Martin, “the effect of the strength or weakness of the currency exchange rate on the economy is not entirely clear, as both have advantages and disadvantages.”
She pointed out that “the exchange rate is related to the competitiveness of products, as well as inflation and the monetary policy of central banks.”
In this context, the economic analyst and currency expert at the German Commerzbank, Esther Reichelt, explained, in an interview with the same network, that “raising interest on the currency leads to attracting funds from abroad and raises the value of the currency.”
And whether the currency will continue to rise in light of the European Central’s indications of the possibility of further rate hikes, expert Reichelt explained that “the pros or cons of increasing interest rates on the strength of the euro depends on the extent of the economy’s ability to compensate for losses resulting from inflation.”
She pointed out that “high inflation pressures the currency downward, and then foreign investments decline, and the currency is affected by the exchange rate of other currencies, so the rise of the dollar leads to resorting to the euro and vice versa.”
Commerzbank expects the euro to reach 1.14 once morest the dollar by the end of this year.
“The euro benefits from higher interest rates,” Reichelt concluded, noting that “fear stems from the continuation of inflation and then the continuation of interest rates hikes and the subsequent recession.”
And she warned that “the strong euro reduces the value of European imports, but at the same time, it raises the value of exports and makes them less attractive with the products of other countries.”
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