For the first time in 20 years, the euro falls below the dollar

For the first time in 20 years, the euro has depreciated below the US dollar, falling by 0.4 per cent during the day’s trading to only approximately $0.998.

[keypoints]

• Russia and Ukraine War caused the euro to fall
• European Central Bank’s failure to raise interest rates to keep pace with inflation on Tuesday
• Contrary to the EU, the American Federal Reserve has gradually increased interest rates

[/keypoints]

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The war between Russia and Ukraine is among the geopolitical causes that have caused the euro to progressively lose value over the past few months.

As a result of the European Central Bank’s failure to raise interest rates to keep pace with inflation on Tuesday, July 12, the euro reached parity with the dollar for the first time in 20 years.

As relevant central banks raise interest rates, currencies often appreciate or remain stable because foreign investors expect higher returns for holding assets denominated in that currency.

Contrary to the EU, the American Federal Reserve has gradually increased interest rates, boosting the value of the dollar on the international market, particularly as investors perceive dollar assets as a haven in times of unrest throughout the world.

European nations now have to pay more for imports as a result of the euro’s dropping value, particularly for essential commodities like oil that are priced in dollars.

Following its introduction in 1999, the euro initially underperformed the dollar; however, the last time it did so was in 2002.

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