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Price of the euro is lower than the dollar: why did the European currency fall back to the minimum in 20 years?

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This Monday, August 22, the price of the euro fell back to $0.9928, its biggest fall against the dollar since 2002, indicated the AFP agency. The variation of the exchange rate would have to do with the uncertainty due to the supply of Russian gas in the Eurozone and the expectation before the increase in the interest rate in the United States. At the end of July, the euro it had already reached a point of parity with respect to the dollar.

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In this context, some economies of the Eurozone are threatened by recession and inflation, as is the case in Germany. The Bundesbank (German central bank) indicated in a report that the contraction of its GDP in the second half of the year is highly probable, while it forecasts inflation levels of up to 10%, driven by the increase in the energy costindicated EFE.

This Monday, August 22, the price of the euro fell to US$ 0.9928. Infographic: AFP

In Peru, the euro price fell back to S/ 3,856 at the close of Monday, August 22, reported the Central Reserve Bank of Peru (BCRP). In this way, it accumulates a loss of -19.90% in the last 12 months. On the same day, the price of the dollar stood at S/ 3.8820.

What is the reason for this decline in the price of the euro?

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The Eurozone and its single currency are affected by its strong dependence on Russia for energy, mentions the newspaper El País. The costs of natural gas rose after the Russians, still in war against Ukraine, will announce the three-day shutdown of the Nord Stream 1 pipeline at the end of August. On the contrary, the dollar would have benefited from rate hikes in the Federal Reserve (Fed) North American, specifies the AFP agency.

In addition to these causes, the economist Juan Carlos Odar underlines structural reasons of the Old Continent. “The European population is growing at a very slow rate, the birth rate is very low, and therefore the entry of new people to the labor market is quite slow”, indicates the director of Phase Consultores.

“The European currency —in this case, thinking about the euro– it gets weak. This has a conjunctural part that has accentuated the weakening, but on the other hand it is a structural issue and that is what is really complicated for Europe, ”says Odar, who also emphasized the fiscal implications and the response to the pandemic in Europe.

The price of the euro had already reached a parity point against the dollar at the end of July. Photo: AFP

“While other currencies like the dollar are getting stronger as the interest rate corresponding is rising, on the contrary Europe is not doing it at the same speed: very slowly and it started later than the rest”, Juan Carlos Odar specified.

Which people are benefiting or harmed by the fall of the euro?

Peruvians who receive euros as remittances from Europe will be affected by this decline in the currency, says Odar. “Let’s think of a Peruvian who has gone to work in Italy or Spain and has a certain amount of euros that he sends to Peru, to his family. The purchasing power with those euros It will be less, and at the same time, if you want to buy dollars, you must spend more euros,” explained the specialist.

Likewise, European consumers themselves will be affected as their currency weakens, since they must increase the amount of euros to make a purchase. On the contrary, they will be favored european exporters because they will receive a greater amount of currency from the Eurozone per unit exported.

“That helps the drop in European economic activity not to be so pronounced. because precisely the depreciation of the euro generates a greater competitiveness of the exporter. Although it is true, within the Eurozone it cannot sell as much because the growth in demand is low, it is selling more to the rest of the world”, argued Odar.

Source: Larepublica

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