Comment For the first time in two decades, the US dollar is equal in value to the euro as Europe grapples with growing recession fears and fallout from Russia’s war in Ukraine. The euro matching or falling below the dollar is a mostly psychological milestone, some experts say, but central banks and policymakers across the European bloc are likely to face pressure to address devaluation concerns. The two currencies reached parity on Wednesday morning, according to Bloomberg, after the euro fell sharply following troubling U.S. inflation data. The euro has been losing ground against the dollar since the start of the year, when it hovered near $1.13, far from a peak of nearly $1.60 in 2008. Live currency data reported by MarketWatch shows the euro slipping just a few cents above the dollar, while Bloomberg and Reuters reported that the euro briefly fell below the dollar in value. The euro is almost equal to the dollar. Here’s why it matters. Analysts say the fall in the euro’s value reflects growing risk aversion among investors, who are pouring into the dollar – considered a “safe haven” compared to other currencies – amid worries about inflation, the war in Ukraine and fears of recession in many countries. Currency markets were jolted on Wednesday morning when the US Bureau of Labor Statistics reported that US prices rose 9.1% in June from a year earlier, a new peak with inflation at 40-year highs . The common currency in 19 EU member states has weakened during the months-long war in Ukraine, which has sent shockwaves through global food and energy markets. The European Central Bank is also lagging behind peers such as the Federal Reserve in tackling rising inflation, which swelled to 8.6% last month – the highest level since the creation of the euro in 1999. The Fed has aggressively raised interest rates to curb inflationary woes, having announced three rounds of hikes this year alone and signaling four more planned rate hikes are in the works. Although the European Central Bank is also expected to raise interest rates to bring inflation back to its 2% target, it is likely to move at a slower pace: it has penciled in a 0.25% rate hike in July, while the Fed it is widely expected to go up 0.75%, as in June. A stronger dollar is good news for Americans considering taking a European vacation or buying goods abroad. Conversely, travel and spending in US dollars has now become more expensive for those earning wages in euros. European businesses selling their products abroad may find that the weaker currency makes their exports more attractive because the buyer’s currency will be more valuable by comparison. American companies, on the other hand, could face a tougher time exporting their products abroad. But more importantly, some experts argue that a less strong euro portends slower economic growth for Europe. “It’s becoming increasingly clear that the eurozone is headed for recession, even though financial conditions have tightened more than in the US or Japan,” Robin Brooks, chief economist at the Institute for International Economics, tweeted. Following the start of the war in Ukraine, the Economist Intelligence Unit revised its 2022 Eurozone growth forecast down from 4% to 2%. It forecasts a growth rate of 1.6 percent for 2023. And the euro’s weakness “reflects investors’ fears of an imminent recession in the eurozone,” said EIU director of global forecasts Agathe Demarais. Stocks were mixed on Wednesday after the inflation report. The Dow Jones Industrial Average fell nearly 450 points after the CPI data was released, then pared its losses. By late morning, the blue-chip index was down 115 points, or 0.4%. The broader S&P 500 fell 0.1 percent, while the tech-heavy Nasdaq rose 0.3 percent. France’s CAC 40 lost 1.2 percent, while Germany’s DAX lost 1.7 percent and the pan-European Stoxx 50 lost 1.5 percent.
