Why the euro is at its lowest against the dollar for twenty years

The euro has returned to near-perfect parity with the dollar, almost as it did in its early days. It was at the end of 2002, here we are back in time with an exchange rate of 1.03 dollars for one euro. At the time, there were still many unknowns around the new European currency and investors were not putting all their eggs in one basket, they were dividing their investments between euros and dollars. Since then, water has flowed under the bridges and the European currency has been able to impose itself, but the current tensions on the international level are too strong.

The euro falls because in times of strong turbulence, the dollar regains its status as a safe haven. Investors believe that the risks are too high today on the Old Continent. The fall of the single currency is linked both to the geographical proximity of Europe to the war zone, and to the very strong dependence of European economies on Russian hydrocarbons. Added to this are fears of a recession because the indicators are converging. The latest being the index of the Standard and Poor’s agency which places the growth of the economy in the euro zone in the private sector in June at the lowest for sixteen months.

A falling euro is good for our companies which can export their products cheaper, or at least at equal competition with the dollar. It is true, but there is the other side of the coin. The euro’s downturn against the greenback further increases the bill for European countries linked to the rise in energy prices since we buy our oil in dollars. If the euro does not rise quickly, we will buy our oil even more expensive. This is one of the most direct impacts on the daily lives of French men and women in terms of inflation and purchasing power.

One of the weapons is monetary policy, the policy conducted by the European Central Bank by playing on the evolution of interest rates. But it is a tool to be used with caution and the ECB’s room for maneuver is increasingly reduced.