With the lowest value in 20 years, why is the euro "glorious" against the dollar?

(Economic Watch) Hit the lowest value in 20 years, why is the euro "glorious" against the US dollar?

　　China News Agency, Beijing, August 24 (Reporter Xia Bin) More than a month ago, the exchange rate of the euro against the US dollar fell below parity for the first time in 20 years, arousing market attention.

More recently, the record-low record set at the time was broken again.

　　On August 22, the euro fell below parity against the US dollar again. On the 23rd, the spot exchange rate of the euro against the US dollar reported a minimum of 0.9899, ​​the lowest value in 20 years.

On the whole, the downward trend of the euro against the dollar has continued for more than a year. On August 23 last year, the closing quotation of the euro against the dollar was 1.1746, a drop of 15.7% in one year.

　　Why does the euro lose its luster to the dollar?

　　Pang Ming, chief economist and head of research at Jones Lang LaSalle Greater China, told a reporter from China News Agency that compared with other major economies, the euro area has sluggish growth and "clustered" structural problems. Concerns about the risk of fragmentation caused by domestic economic imbalances are the fundamental reasons behind the sharp fall in the euro exchange rate.

　　"The high inflation pressure in the euro zone, the haze of the energy crisis, the differences in monetary policy between Europe and the United States, and geopolitical risks such as the Russian-Ukrainian conflict and the political instability in Italy are the direct incentives to pull down the performance of the euro. The recent strong rise in the dollar index is the cause of the euro. The technical reasons for the exchange rate against the US dollar falling below the historical low." Pang Ming said.

　　According to Sheng Songcheng, a professor of economics and finance at China Europe International Business School, a weaker euro may be an inevitable long-term trend.

The recent continued weakness of the euro is not unexpected, and it is mainly affected by two factors.

On the one hand, the U.S. dollar has been trending strongly recently. The Fed’s rapid and intensive rate hikes this year have attracted global capital to concentrate on the U.S. dollar market, pushing the U.S. dollar to strengthen. The recent high of the U.S. dollar index has exceeded 109.

　　On the other hand, in addition to the impact of a stronger dollar, the continued weakness of the euro is mainly dragged down by the Russian-Ukrainian conflict and the resulting energy crisis.

　　At present, the economy of the euro zone can be described as "troubled". Can the euro be able to "turn over" in the future?

　　Shen Jianguang, chief economist of JD.com, pointed out that after the conflict between Russia and Ukraine interrupted the economic recovery in Europe, Europe has fallen into the dilemma of "stagflation".

The Russian-Ukrainian war has caused shortages of energy and food in Europe, and inflation has risen to a record high, which in turn restricts corporate production, weakens consumer confidence, and deteriorates trade balances.

At the same time, the Russian-Ukrainian war has led to a significant weakening of the economic momentum in Europe. Under the heightened uncertainty, the confidence of residents and businesses has cooled, affecting consumption and investment behavior.

　　Pang Ming pointed out that in the short term, the euro may experience a technical rebound, but overall it is likely to continue to be under pressure.

From the perspective of internal factors, no matter how the European Central Bank chooses between aggressive interest rate hikes to curb inflation and mild tightening to protect growth, it will affect the trend of the euro. However, considering the continued energy shortage problem and whether the soaring inflation can be effectively controlled remains doubtful. Factors such as raising interest rates from negative interest rates leave little room for the European Central Bank to implement a monetary policy that exceeds expectations to guide the market curve.

　　From the perspective of external factors, the European economic and financial cycle lags behind the United States, and the dollar curve still has the power to rise to the right. If the Fed continues to adopt a hawkish stance to aggressively raise interest rates, the pace of the European Central Bank’s interest rate hikes is likely to be difficult to follow up, and the interest rate spread and The "safe haven" attribute of US dollar assets will promote the continued strong position of the US dollar against the euro.

　　Pang Ming also said that in the medium and long term, it can be said that the performance of the euro is likely to continue to be dragged down by weak economic fundamentals in the region, the normalization of monetary policy and the continuous decline in international competitiveness.

　　In fact, due to the rising uncertainty in the international environment and the monetary policy shift of the Federal Reserve, since the beginning of this year, the exchange rates of major non-U.S. currencies against the U.S. dollar have been under pressure to depreciate. The RMB exchange rate also experienced a wave of depreciation in August. The offshore RMB exchange rate has both fallen below 6.8 recently.

　　Pang Ming bluntly said that compared with the euro zone, under the new normal of the two-way fluctuations in the RMB exchange rate, many positive factors will exist for a long time. , to promote the successful practice and effective balance between the various tasks of the reform.

　　Specifically, Pang Ming said, for example, China's macroeconomy has maintained a steady recovery, the policy support has obvious marginal strengthening effect, and endogenous growth momentum has increased; China's various policy measures are closely coordinated and organically linked to ensure the autonomy of monetary policy and the free flow of capital. The three goals of stability and exchange rate stability have been achieved in a dynamic equilibrium; China continues to unswervingly pursue all-round reforms and high-level opening up, push up asset prices denominated in RMB, and attract funds to continue to flow into the Chinese market.

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