For the first time since December 2022, Euro dipped below parity with the Dollar on a one-to-one exchange rate last Wednesday. The currency, which promised to bring unity amongst the European countries and is currently shared by nineteen countries of the province, is facing a decline. The currency has slumped more than 11% this year. There are different reasons for this occurrence. Read this article till the end.
CURRENCIES AS INVESTMENT
Currency is a form of investment. They work the way other investment securities like bonds, stocks, and crypto work. They have a boom and slump. The dollar is everyone’s favorite when it comes to investing in currency. The majority of the investors prefer parking their assets in USD. They buy it when they think it will appreciate and sell on predictions of decline
Moreover, US dollars are a must to buy Apple stocks and US government bonds. Therefore, in the recent economic distress, people have bought a lot of dollars. This increased buying has appreciated the USD against other currencies, including Euro.
RUSSIA-UKRAINE WAR AFFECT
The recent Russia-Ukraine war has also played a significant role in plummeting the Euro against the US Dollar. First, the pandemic and this war have disrupted the global supply chains forming an inevitable demand-supply equilibrium. These disruptions have caused an increase in the prices of commodities, including food, oil, and energy, leading to very high inflation rates. The US and European Central banks are committed to bringing down inflation by raising the interest rates. On the other hand, Chinese production is restricted due to Covid-19.
Moreover, European countries are not on good terms with Russia after the war. These unfriendly relations have threatened the energy supply from Russia to Europe. Concerns that Russia might permanently shut down the natural gas pipeline to Germany have directly affected Euro stability.
RECESSION IN EUROPE?
European Central Banks are not increasing interest rates to the USA’s level. On the other hand, several factors have played their parts in the depreciation of a currency that was once considered very trustworthy. Experts see this fall of the Euro as a hint toward a deadly recession in Europe anytime soon.
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