Econostrum | Economic News in the Mediterranean

1 € = 1 $ and this is a first since the circulation of the European currency

Written by Frédéric Dubessy on Tuesday, July 12th 2022 à 16:15 | Read 283 times

The exchange rate between the dollar and the euro was reached briefly on Tuesday 12 July 2022 (photo: F.Dubessy)
The exchange rate between the dollar and the euro was reached briefly on Tuesday 12 July 2022 (photo: F.Dubessy)
EU/US. For the first time since its creation as a currency in circulation, the euro was at parity with the dollar on the morning of Tuesday 12 July 2022. Before trading, from the very beginning of the afternoon, at 1.0024 dollars and to go back up, painfully ) 1.0041 dollars at the time of publishing this article.

The European currency has just celebrated its twentieth anniversary in January 2022. It has begun a slow decline against the greenback due to soaring inflation, fears of a recession in Europe with the war in Ukraine and particularly the risk of Russian gas supplies being cut off. The Nord Stream 1 pipeline has been undergoing maintenance for ten days and some eurozone countries, mainly Germany, are concerned about whether it will resume deliveries after 21 July 2022. If not, the consequences for the European economy would be dire. The market is therefore worried about a possible energy crisis in the Old Continent that would lead to a recession.

At the same time, the dollar, a traditional safe haven, has strengthened, gaining nearly 14% since the beginning of the year thanks to a more aggressive policy by the US Federal Reserve. With the aim of fighting inflation, the US central bank raised its key rates by three-quarters of a percentage point in mid-June 2022, the biggest increase since 1994. At the same time, the European Central Bank (ECB) more cautiously opted for a twenty-five basis point increase in interest rates in July 2022, but plans a further rise in September 2022.

European households' purchasing power affected

This new parity is bad news for non-exporting SMEs that buy their raw materials in dollars (large companies know how to avoid exchange rate risks), but also for the purchasing power of European households, whose decline will result in a slowdown in consumption.

On the other hand, 1 euro = 1 dollar is good news for certain sectors such as the manufacturing industry in the euro zone, which can thus export more, as well as the agri-food industry, aeronautics and the luxury sector. Foreign tourists with dollars will also see their purchasing power increase in the eurozone countries.

The euro reached a record high against the dollar on 15 July 2008 with a parity of 1 euro to 1.60 dollar. At the time, the US currency was in turmoil because of the subprime crisis.

The euro also fell against the Swiss franc, reaching its lowest rate since 2015 (1 euro for 0.9836 Swiss francs).

Croatia soon in the eurozone

The European currency is the currency of nineteen of the twenty-seven European Union Member States (see box) that make up the euro area. There are also Andorra, Monaco, San Marino and the Vatican City, which are not members of the EU and which use the euro in their own colours thanks to a formal agreement with the EU. But also Montenegrins and Kosovars use the currency without any monetary agreement.

Croatia will be the twentieth Member State to adopt the euro by 2025 at the latest. It has just been given the green light to do so with the publication, at the beginning of June 2022, of two separate convergence reports, one from the European Commission and the other from the ECB.

28.83 billion euro banknotes and 142.51 billion euro coins were in circulation by mid-May 2022, according to the latest statistics published by the ECB.

The Euro in ten dates
7 February 1992: Adoption of the Maastricht Treaty (entered into force on 1 November 1993), which obliges most EU Member States to adopt the euro if they meet the convergence criteria.

1 January 1999: Introduction of the euro, the successor to the ECU (European Currency Unit) created in 1979, as a virtual currency

1 January 2002: Euro introduced in 12 countries (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain).

1 January 2007: Slovenia joins the euro.

1 January 2008: Cyprus and Malta adopt the single currency

1 January 2009: Slovakia adopts the euro

28 September 2000: Denmark decides in a referendum (53.2% no to membership) not to join the euro area

1 January 2011: Estonia adopts the euro

1 January 2014: Latvia adopts the euro

1 January 2015: Lithuania adopts the euro

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