Euro falls to under $1 for first time since 2002
Amid the EU sanctions policy against Russia, the Eurozone continues to suffer economically.
For the first time since December 2002, the euro dropped below the symbolic $1.00 mark on Wednesday as a result of a deteriorating prognosis for the economy of the eurozone and the potential for a total interruption of the Russian gas supply.
After official statistics revealed a spike in US inflation in June, which fueled hopes for a further tightening of interest rates by the US Federal Reserve, the euro plunged to $0.9998. The dollar gains in appeal to investors as borrowing costs rise on the other side of the Atlantic.
The dollar increased in value relative to the yen from 136.86 to 137.55 yen. The dollar index, which measures the strength of the dollar against a basket of currencies from six of the biggest trading partners of the United States, increased by 0.29 percent to 108.43 points.
From 8.6 percent in May to 9.1 percent in June, the rate of inflation in the US was the highest since November 1981. Analysts had predicted a rise of just 8.8 percent.
Eurozone faces mounting recession risk: Bloomberg
The risk of a eurozone recession is increasing, according to economists polled by Bloomberg on Tuesday, in light of surging energy and food prices and a declining European economy.
The likelihood of a significant contraction has risen to 45%, up from 30% in the previous survey and 20% prior to the start of the war in Ukraine, which resulted in sanctions against Moscow and a reduction in Russian energy flows, primarily to Germany.
“We assume a recession based on the already implemented oil embargo and the effect of higher input prices on industry,” Erik-Jan van Harn, a strategist at Rabobank, said as quoted by Bloomberg.
“The German economy is already slowing down and the trend is clearly downward,” the expert stressed.
The rising cost of living in Europe is putting a strain on businesses and consumers, who had only recently begun to return to pre-pandemic levels of spending and production capacity.
At the same time, reduced Russian natural gas shipments threaten winter energy supplies.
Analysts continue to expect Eurozone inflation to peak in the current quarter. Inflation forecasts have been raised from the previous poll, but price growth is still expected to slow to the European Central Bank's target of 2% in 2024.
It is worth noting that trading data reported on Tuesday that the euro fell to parity with the dollar, before settling at $1.0005, the lowest point ever recorded since December 2002.
Since the start of this year, the euro recorded a loss of 12% of its value against the dollar. Markets did not anticipate such a rapid fall in July, labeling the direction of EU/USD as bearish and predicting it could fall below the $1.0000 mark in the near term.