The depreciation of the euro cannot be stopped.
In the foreign exchange market on the 13th, the value of the euro fell below the equivalent (parity) of 1 euro = 1 dollar.
It is the first time in 20 years that "parity cracking" has occurred.
In the background was the economic situation surrounding the euro area, which was completely replaced by Russia's military invasion.
(Aya Shinoda, Reporter, Ministry of Economic Affairs)
Euro interrupts parity
The euro has been declining against the dollar since the beginning of last year and has fallen 12% against the dollar this year.
In the foreign exchange market on the 13th, it finally broke the parity of 1 euro = 1 dollar, and on the 14th the next day, the price dropped to 1 euro = 0.995 dollars.
There are two factors behind it.
One is the strong dollar.
In the United States, there is growing belief that the Fed, the central bank, will raise rates significantly later this month in order to curb record inflation.
The US raised rates significantly last month, but is believed to tolerate a stronger dollar to combat inflation.
This view of the market has led to a weaker euro.
Another factor is growing concern about a slowdown in Europe.
Inflation has not subsided in Europe as a result of Russia's military invasion, but there is growing concern about whether energy that is directly linked to corporate production activities and civilian life can be secured.
"Nord Stream" is a pipeline that sends natural gas from Russia to Germany.
The supply of gas from here has stopped from the 11th of this month due to the regular inspection on the Russian side.
It is also seen as a sway by Russia, but this has spurred the depreciation of the euro in the form of the weaknesses of Germany, which relied on energy from Russia.
The transformation of Germany that has pulled the European economy
How serious is the energy crisis facing Germany?
The Dutch TTF, an indicator of European natural gas prices, has skyrocketed about five times over the past year.
Soaring gas prices are also affecting the lives of the German people.
Looking at the consumer price index in June, gas prices have increased by a whopping 43% compared to a year ago.
It is reported that the business environment of energy companies has deteriorated and the German government is considering support measures for energy companies.
As a result of soaring energy prices and the depreciation of the euro pushing up import prices, the May trade balance announced on the 4th of this month fell into the red for the first time in 31 years since June 1991.
The transformation of Germany, which has been the driving force behind the European economy, is amazing.
Market officials talk about the harsh reality of Germany:
"Europe's winter gas demand is three times that of summer, and if supply from Russia remains stagnant, the distribution system in Germany is becoming a reality. Consumers are screaming because of soaring electricity and gas costs. However, the situation is so severe that some people are preparing firewood as fuel for winter. Whether or not energy can be secured is a matter that is directly linked to life and life. "
Is it the first rate hike in 11 years?
Under these circumstances, the market is paying attention to the ECB = European Central Bank's board of directors, which will be held on the 21st of this month.
Based on the results of the previous meeting, the market expects a 0.25% rate hike.
It will be the first time in 11 years for the ECB to raise interest rates.
And depending on inflation, a significant rate hike of over 0.25% is expected at the next September meeting.
However, can inflation be curbed amid growing concerns about a slowdown in the European economy, including Germany?
The future is uncertain, whether the tightening of monetary policy will cool the economy and lead to stagflation (recession and inflation occur at the same time).
Risks peculiar to the euro area
There are also risks specific to the euro area.
It is the "division" of financial markets.
It has been pointed out that the financial market situation varies from country to country, but if the ECB raises interest rates uniformly in the region, it may raise awareness of the debt problem of countries with weak fiscal bases.
This is the fate of the euro area, which has a unified currency, and of course the ECB seems to be thinking about measures to mitigate the impact of rate hikes, but what kind of impact will the rate hike for the first time in 11 years have on the economies and financial markets of each country? Attention is paid to whether it will affect it.
On the other hand, in the foreign exchange market, the yen's depreciation and the dollar's appreciation are accelerating from the view that US monetary tightening may be strengthened, and the yen has fallen to the level for the first time in 24 years.
Under these circumstances, I would like to pay attention to how the "parity break" against the dollar caused by the depreciation of the euro will affect the yen exchange rate and whether it will be a factor of further market turmoil.
Scheduled to pay attention
The Bank of Japan's monetary policy meeting will be held for two days on the 20th and 21st.
There are many views in the market that the Bank of Japan will continue large-scale monetary easing measures, but as the yen depreciates rapidly, conscious of the difference in the direction of monetary policy between Japan and the United States, Governor Kuroda's remarks are drawing attention.
The ECB = European Central Bank Board of Directors will be held on the 21st.
It is expected that this will raise interest rates in order to curb inflation, but what kind of mention is made about the outlook for future monetary policy amid growing concerns about the economic slowdown in the euro area?
Keep an eye on this too.