On Tuesday, July 12, international trading was marked by the first parity of the European and American currencies in almost 20 years.
In other words, the euro and the dollar have become equal.
In the middle of the day, exactly $1 was given for €1 on the world market.
The last time a similar situation could be observed was in December 2002.
Since mid-February, the European currency has fallen in price against the US by almost 13%.
The observed dynamics is largely related to the deterioration of the situation in the European economy, says investment strategist of Arikapital Management Company Sergey Suverov.
“The main reason for the weakening of the euro is the energy crisis in the eurozone.
The region suffers from a shortage of energy resources, including Russian gas.
As a result of anti-Russian sanctions, commodity prices have reached a high level, which has already led to a record acceleration of inflation.
This, in turn, leads to a decrease in consumer demand and is one of the main triggers for a recession, ”the source explained to RT.
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© WALTER ZERLA
Recall that since the end of winter, the European Union, the United States and some other countries continue to impose new economic sanctions against Russia.
This is how the West reacts to the conduct of a military special operation in Ukraine.
In total, almost 11.3 thousand restrictions have already been imposed on Moscow (8.6 thousand of them since February 22), as evidenced by the materials of the global sanctions tracking database Castellum.AI.
Restrictions, in particular, affected the banking industry, the energy sector, aviation and trade.
At the same time, almost half of Russia's gold and foreign exchange reserves (worth $300 billion) were frozen, and many international companies announced their withdrawal from the Russian Federation.
Since the beginning of March, inflation in the eurozone has accelerated from 5.8% to 8.6% in annual terms.
The value became the maximum for the entire time of observation.
At the same time, in several countries of the region (Lithuania and Estonia), the indicator exceeded 20%, according to a study by Eurostat.
Earlier, UN economists called the current situation a shock for the European economy.
Against this background, the organization's experts did not rule out the possibility of a recession in a number of EU countries.
“Objectively, Europe is closer to the epicenter of the geopolitical crisis than the United States, so the eurozone economy suffers from the events around Ukraine much more than the American one.
The weakening of the euro against the dollar and other currencies leads to higher prices for imported products for ordinary Europeans.
Therefore, we should expect an even greater increase in inflation in the eurozone, ”Valery Yemelyanov, an expert at BCS World of Investments, explained to RT.
According to analysts, earlier the Russian market was one of the key markets for the sale of European goods.
And the rupture of economic ties with Moscow and the simultaneous reduction in the supply of energy resources from the Russian Federation led to a serious weakening of the business climate in the European region.
“In addition, the migration crisis is making its contribution, since the maintenance of the arrived refugees becomes an additional burden for the European budget.
This also contributes to the acceleration of inflation, which puts pressure on ordinary Europeans, reducing their purchasing power,” Sergei Suverov added.
Ukrainian refugees at the border checkpoint in Romania, March 25, 2022
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© Andrea Alexandru
In the current environment, investors are also concerned about the excessive debt load of European countries.
Natalya Milchakova, a leading analyst at Freedom Finance Investment Company, shared this opinion in an interview with RT.
According to the latest estimates from the Institute of International Finance, by early April 2022, the debt burden of the eurozone states was almost four times the size of the region's economy.
At that moment, the total debt of the population, companies, financial institutions and governments of the countries of the association was almost 395% of the GDP of the eurozone.
According to Milchakova, the current state of affairs further undermines investor confidence in the euro.
A similar point of view is shared by Nikolai Pereslavsky, an employee of the Department of Economic and Financial Research at the CMS Institute.
“The crisis is wide-ranging.
Countries have inflated debts.
The situation in the industry can reach the point where gas will be sold through an auction or by quotas.
The lack of food is not yet felt so strongly, but ordinary Europeans have already felt the effect of inflation and rising food prices without increasing wages.
If the situation worsens, and it is only a matter of time, then a political crisis and serious unrest will be the next links in the chain.
We will probably see this in the fall, ”Pereslavsky suggested.
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© Don Farrall
Fear of heights
Additional pressure on the European currency is exerted by the growing difference between interest rates in the US and the eurozone, Alexander Dzhioev, an analyst at Alfa Capital Management Company, told RT.
According to him, investments in the dollar are becoming more attractive for investors compared to the euro.
“In response to record high inflation, the US Federal Reserve has raised its interest rate three times since the beginning of the year.
At the same time, the European Central Bank (ECB), despite a similar problem with a sharp increase in the price level, is still only planning to move on to tightening monetary policy at the end of this month,” Dzhioev explained.
Note that for more than six years, the ECB rate has consistently remained at 0% per annum.
According to experts, it is difficult for the European regulator to switch to tightening monetary policy, since the region's economy is on the verge of recession, and raising rates to fight inflation could further weaken business activity.
“The ECB is too slow and timid.
This is actually the only reason why the rate has not changed in recent years.
The programs to help the economy that began back in the pandemic are coming to an end, but under the current circumstances, European countries are likely to start distributing money to the population again, and this will lead to an even greater increase in inflation.
How the region will go through the current crisis will determine the further vector of development and existence of the EU as such,” believes Nikolai Pereslavsky.
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© Michael Probst
Cheaper than a dollar
According to Sergei Suverov, in the foreseeable future, the European currency will continue to fall in price against the US, and the cost of €1 may drop to $0.95.
In turn, Natalya Milchakova does not rule out the possibility of the index falling to $0.92.
The rapid weakening of the euro in the world was reflected in the Russian foreign exchange market.
Moreover, on July 12, during trading on the Moscow Exchange, the European currency at certain points was cheaper than the American one.
For example, at noon, the dollar exchange rate on the trading floor fell to 59.2 rubles, and the euro exchange rate to 59.1 rubles.
A similar situation was on the Moscow Exchange on May 19, when trading was accompanied by rush sales of the European currency.
As a result, the euro fell to 61.11 rubles, and the dollar only to 61.55 rubles.
As experts explained, on that day, European companies could spend a large cash tranche to pay for Russian gas in rubles.
The Central Bank also reacted to the emergence of currency parity.
The official exchange rates of the Central Bank on July 13 were set at 58.85 rubles per dollar and 58.76 rubles per euro.
In connection with the onset of parity in the global market, in the near future, the dollar and euro exchange rates on the Moscow Exchange will continue to fluctuate in the general range of 58-60 rubles, Natalya Milchakova believes.
At the same time, Valery Yemelyanov admits that by the end of the year the currency corridor may shift towards 65-70 rubles per dollar and euro.