California Observer

Euro Depreciates in Value Below the Dollar

Image Source: CNN

For the first time in over 20 years, the euro has depreciated more than the dollar as a result of the conflict in Ukraine. At 12:45 GMT, the value of a single euro fell by 0.4 percent to $0.998 on the foreign currency market.

The recession in the euro area is now more likely due to worries that Russia would limit energy supplies to Europe.

The European Central Bank has been slower to raise rates than other central banks, further weakening the euro. As international investors want a higher return for holding assets valued in that currency, currencies often climb when the applicable central bank raises interest rates.

The US central bank hiking interest rates, as well as investors looking for a safe haven in dollar assets during times of global unrest, have helped to support the dollar’s strength in recent months.

In particular, items priced in dollars, like crude oil, will become more expensive for countries in the eurozone to import. The eurozone’s already-high inflation rate of 8.6 percent for June could be made even higher by this.

The bank is anticipated to begin raising interest rates the following week. Since the beginning of the year, the euro has lost over 12% of its value against the dollar.

For most of its history, the euro has been more valuable than the dollar. After the currency’s debut in 1999, it lagged behind the dollar for some time, although the last time it did so was in December 2002, less than a year after the first euro notes and coins were issued.

Growing concerns that the 19 nations that use the euro would enter a recession have played a major role in the euro’s decline this year. Oil and gas costs have increased as a result of the crisis in Ukraine, harming both consumers and businesses in Europe.

Particularly, Russia’s recent reduction in natural gas supply has caused prices to soar and sparked worries about a complete cutoff that may force countries to limit energy to the industry in order to protect homes, schools, and hospitals. European politicians have criticized Moscow’s action as an effort to intimidate Europe into supporting Ukraine and accepting Western sanctions in response to Russia’s invasion.

At current rates of use, according to economists at Berenberg Bank, the additional gas bill would total 220 billion euros ($224 billion) over the course of a year, or a staggering 1.5 percent of the nation’s yearly economic output.

The United States, the world’s largest economy, is currently facing more uncertainty due to the strengthening of the currency. On the one hand, a stronger dollar lowers the price of imported goods for Americans and lessens inflationary pressures. but not by much.

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