Against the dollar, the euro is at its lowest for twenty years. The single European currency ended last week below parity with the greenback.
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Friday, September 2, one euro was worth 0.99 dollars, worse than when it was introduced in 2002. At the time, we were at 1.02 dollars for one euro. There were then many unknowns around the new currency and investors were wary and divided their investments between euros and dollars. Since then, the European currency has been able to impose itself, but the current tensions on the international level are too strong and weigh on our currency.
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The other side of the coin is the surge of the dollar. In times of severe turbulence, the US currency regains its status as a safe haven. Investors believe that the risks are today significant in Europe, between the war in Ukraine and our strong energy dependence. Added to this are fears of a recession on the Old Continent.
The falling euro is good for our companies which can export their products cheaper. But there is the other side of the coin: the fall in the euro against the greenback is increasing the energy bills of European countries since we buy our oil in dollars. A stronger dollar than the euro means that we buy our oil more expensive and this generally contributes to fueling inflation.
To reverse the trend, the European Central Bank can intervene by maneuvering interest rates. It is a tool to be used with caution and the ECB has already raised its rates in July in an attempt to curb inflation. The eyes of economists and financial observers are on Frankfurt in Germany, where the European Central Bank is located. It is not excluded that a new rise in rates will occur during the week.