Xinhua News Agency, Frankfurt, July 13 (International observation) Multiple factors cause the euro exchange rate to fall
Xinhua News Agency reporter Shan Weiyi Shao Li
In the past three weeks, the exchange rate of the euro against the U.S. dollar has continued to fall, and on the 12th in the European foreign exchange market, it even fell to the lowest point in nearly 20 years, 1 euro to 1 dollar.
Analysts generally believe that multiple factors have caused the euro to fall against the dollar, and a weak euro may further push up European inflation.
According to data from the European Central Bank, the exchange rate of the euro against the US dollar fell to 1 to 1.0042 from 1 to 1.0098 the previous day on the 12th, with a cumulative decline of more than 11% since the beginning of 2022.
The euro weakened against the dollar, mainly due to the recent slowdown in European economic growth.
According to the latest ECB forecast, the euro zone economy will grow by 2.8% in 2022 and 2.1% in both 2023 and 2024.
Growth forecasts for 2022 and 2023 have been revised down sharply from the March forecast.
The ECB said the euro zone economy is expected to grow by just 1.3% in 2022 and shrink by 1.7% in 2023 in the event of a severe disruption to energy supply and a further surge in prices.
Secondly, the continued rise in inflation in the euro area is also an important reason for the decline in the euro exchange rate.
According to preliminary statistics released by Eurostat on the 1st, energy and food prices in the euro zone continued to soar, and the inflation rate in June reached an annual rate of 8.6%, a record high.
Third, the European Central Bank has raised interest rates far less this year than the US Federal Reserve, which has widened the interest rate gap between Europe and the United States.
The economic and financial cycle of the euro zone lags behind the United States, so the euro tends to be weaker than the strong performance of the dollar.
The market's expectations for a larger rate hike by the Federal Reserve at the end of July strengthened, leading to a stronger dollar exchange rate.
In addition, the European energy supply crisis continues to ferment.
On the 11th, the shutdown and maintenance of the "North Stream-1" pipeline aggravated Europe's energy dilemma and cast a shadow over the European economy.
Citigroup currency analyst Ibrahim Rabari expects the euro to continue to fall after falling to parity with the dollar.
A weaker euro could further push up European inflation, fueling fears of a euro zone recession.
Affected by rising energy prices and the depreciation of the euro, the pressure on the cost of imported energy in the euro zone countries will further increase.
The minutes of the June meeting of the European Central Bank Governing Council showed that since the dollar is the main denomination currency for European oil imports, the euro continued to depreciate against the dollar, which had a direct impact on inflation.
Against the background of high inflation and deteriorating economic prospects, the normalization of the European Central Bank's monetary policy is facing challenges, and raising interest rates too fast and too sharply may trigger a European debt crisis.
The rise in interest rates in Europe will curb the rate of economic growth while controlling inflation, and will lead to refinancing difficulties in some member states of the euro zone.
European Commission Executive Vice President Dombrovskis said that in the face of unprecedented high inflation, the EU needs to introduce more targeted measures.