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Euro hit 20-year low against dollar

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With information from El País

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The euro fell yesterday to its lowest level in the last 20 years against the dollar US, as traders bet that the European Central Bank (ECB) will delay raising its interest rates due to the risk that the economy enters a recession. On the other hand, the US Federal Reserve (FED) is carrying out a much more aggressive monetary policy to contain the inflation.

The trend is clear. The euro has lost 9% so far this year and 13% in the last twelve months. But no one takes it for granted that the correction is over. Two sessions with falls in the European currency similar to that of this Tuesday —of 1.5%— would be enough for the euro-dollar parity to be reached. And many analysts predict that it is inevitable.

Thus, the possibility that a dollar and a euro are worth exactly the same would be getting closer.

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The day before, the eurozone’s common currency depreciated to $1.03, its lowest value since November 2002. The losses came as money markets continued to cut their bets on the ECB tightening, while lowering growth prospects for the region.

The euro has lost 9% so far this year and 13% in the last twelve months. Photo: AFP

“The evolution of interest rates in the US against the euro zone will continue to attract capital flows to the dollar zone”, says Ignacio de la Torre, chief economist at Arcano Partners. This is so because the FED is making the price of money more expensive, which makes it possible to obtain higher remunerations and makes the dollar a refuge in times of uncertainty.

The president of the ECB, Christine Lagarde, has been immersed in a dilemma for months: raising rates strongly to curb the suffocating inflation —8.6% in June—, even at the cost of stressing the risk premiums of the southern countries and derail the recovery, or slow down despite the risk that the economy spirals into higher wages and prices.

Source: Larepublica

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