Euro value falls to equal U.S. dollar for first time in 20 years
Take a look: 1 euro = $1. With a war on the eurozone’s border, an uncertain energy supply from Russia and a growing risk of recession, the pressures bearing down on the euro finally grew so strong that Wednesday, it briefly dipped below parity with the U.S. dollar — a one-to-one exchange rate.
It’s a sight unseen since December 2002, in the early years of the currency’s existence. The aesthetically pleasing round number has become a focal point for investors.
Even more remarkable than breaching this level is how quickly the euro has dropped against the dollar. The currency, shared by 19 European countries, has slumped more than 11 percent this year, as the dollar’s strength has been almost unmatched.
The euro’s sharp decline has come as the dollar, for generations one of the safest places to park money, has strengthened against almost every major currency in the world.
Currencies move like stocks, bonds or any other asset — investors can buy them directly when they think they will grow in value and sell when they think they will decline. They also reflect global demand for a country’s assets in general, because buying U.S. government bonds or Apple stock requires getting dollars first, and lots of global trading takes place in dollars. So, as often happens in times of economic distress, people looking for a safe place to put their money have bought more dollars, at the expense of other currencies like the euro.
The euro was introduced in 1999 after decades of discussion and planning, with the intention of bringing unity, prosperity and stability to the continent.
In recent months, a vast number of factors have been mounting against the euro and in favor of the U.S. dollar, which has reasserted itself as a haven during economic upheaval.
Globally, supply chains have been disrupted by the pandemic and the war in Ukraine. Since Russia’s invasion in February, the prices of essential commodities including oil, natural gas, wheat and fertilizer have soared, pushing up food and energy prices around the world.
Now central bankers in the United States and Europe have committed to bringing down inflation through higher interest rates. The risk of recession has been worsened by restrictions on Chinese production because of COVID-19 rules, while efforts to wean Europe from Russian energy are proving difficult to accomplish. These trends have made the dollar stronger while offering little to help the euro.