The interest rate differential and increased impact on the European economy from the invasion of Ukraine continue to exert downward pressure
Having fallen on the psychological barrier of parity with the dollar, the euro has failed to stabilize. Today, it has fallen to $0.990, raising fears that the price will drop to the next hundredth, which is $0.98. And experts argue that the decline may continue. “It is hard to imagine that the euro will be more attractive than the dollar, especially as the Federal Reserve continues to tighten its monetary policy,” they emphasize on the platform specializing in currency exchange Daily Forex, where they emphasize that not Once the poor U.S. unemployment rates in August – it rose to 3.7%, two-tenths higher than expected and the highest since February – have given the community currency a boost.
The growing differential between the interest rates of the US superpower and those of the Old Continent is making capital more attracted to the former, while the latter is more affected by the economic fallout from the invasion of Ukraine, which is undermining confidence in the euro . Unsurprisingly, inflation in the eurozone is already higher than in the United States and the specter of recession in Europe is becoming increasingly apparent. It all depends on what happens to the energy crisis, which is not suffered on the other side of the Atlantic: if the Russian gas outage lasts over time, reserves will not be enough to cope with the exorbitant price increase and supply to contain. would be at risk if the winter is severe, which in turn could lead to the closure of the plants that rely most on natural gas for production.
With forecasts increasingly bleak, a slowdown in consumption could lead to what is already beginning to emerge: a rise in unemployment. In this scenario, a weak euro is bad news. Mainly because it makes imports of energy, raw materials and even ocean freight, which are paid in dollars, even more expensive.
Thus, the current exchange rate becomes a relevant inflationary force. Moreover, bearing in mind that European exports of energy and raw materials are minimal, the benefits of a low euro on exports do not offset the higher costs of materials and components purchased abroad.
We’ll have to see if the rise in interest rates that the ECB wants to set today can mitigate the euro’s weakness. In any case, it’s unlikely, as the Fed also plans to do something similar at the end of the month to preserve the spread. In this way, in addition to inflation, citizens will have to cope with the rise in the cost of credit, which is already beginning to be noticed in mortgages with a variable interest rate. As the Fed president came forward, the situation will “cause pain” for consumers and businesses. But more in Europe than in the United States.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
