Econostrum | Economic News in the Mediterranean

The euro now trades at less than a dollar

Written by Frédéric Dubessy on Tuesday, August 23rd 2022 à 16:39 | Read 225 times

The ECB will have to look closely at the euro's decline against the dollar at its next meeting in September 2022 (photo: ECB)
The ECB will have to look closely at the euro's decline against the dollar at its next meeting in September 2022 (photo: ECB)
EU. For the first time since its introduction in January 2002, the euro fell below the dollar at the close of business on Monday 22 August 2022, after a 1% drop in the common European currency. In the early hours of the next day, it took €0.9935 to obtain $1.

On 15 July 2008, one euro was traded for $1.60. This record was set at a time when the dollar was being battered by the subprime crisis. Everything has now changed. The first warning sign came when the two currencies were at parity on the morning of 12 July 2022. A first for twenty years. Since then, the euro has been "yo-yoing", flirting with the $1 mark, but always managing to stay above the waterline symbolised by parity. Since Monday 22 August 2022, this is no longer the case.

The current situation is due to fears of a recession in the Eurozone due to the conflict in Ukraine and threats to the supply of hydrocarbons to EU member states. Nineteen EU27 countries have adopted this currency (Croatia will do so from 1 January 2023). The closure of the Nord Stream 1 gas pipeline from 31 August to 2 September 2022, "for maintenance", according to the Russians, accentuates this prudence.

Another reason is the very good health of the dollar. More than ever a safe haven, it has gained nearly 14% since the beginning of 2022 and jumped 2.3% on Monday 22 August 2022. The greenback benefits from the strong support of the US Federal Reserve (Fed). Its governor, Jerome Powell, who has an aggressive policy, is due to speak on Friday 26 August 2022 and could announce a further rate hike.

The purchasing power of 340 million Europeans affected

This fall against the dollar will not help exports, quite the contrary. Apart from the food industry, aeronautics and the luxury sector, the vast majority of countries using the euro trade mainly with their eurozone neighbours. On the other hand, essential imports such as hydrocarbons will now be more expensive, since they are denominated in dollars. The same applies to raw materials. The purchasing power of more than 340 million Europeans will therefore be affected in a knock-on effect.

The European Central Bank (ECB) will hold its next meeting on 8 September 2022. It remains to be seen whether the monetary policy committee will want to halt this inexorable decline in the euro by acting on key rates. "We do not comment on the level of the exchange rate. But persistent movements in the exchange rate are important for monetary policy, as they have an impact on the inflation outlook. The euro has depreciated considerably, especially against the US dollar," Isabelle Schnabel replied on 16 August 2022 in an interview with Reuters journalists reproduced on the ECB website.

A member of the European Central Bank's Executive Board, she said at the time, "In July, we decided on a 50 basis point increase because we were concerned about the inflation outlook. At the moment, I don't think that the outlook has changed fundamentally. He added, "At the same time, we have moved to a 'meeting-by-meeting' approach, which means that any decision will be made on the basis of incoming data. If I look at the most recent data, I would say that the concerns we had in July have not been allayed. In September we will have an assessment of all the available data and we will have new staff projections.

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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