The consequences of the fall of the euro, which reached the same price as the dollar for the first time in 20 years
Euro fell to lowest level against the dollar since 2002
The euro, the common currency of the European Union (EU), fell to its lowest level in 20 years, reaching parity with the American currency, the dollar.
The two currencies reached the same value on Tuesday (12/7), which represents a 15% devaluation of the euro in the last year.
This comes at a time when fears of an economic recession in Europe are growing in the markets, in a context of high inflation and growing uncertainty about the continuity of Russian gas supplies.
Gone are the years when the euro was so strong (1.6 times the dollar during the 2008 global financial crisis) that many Europeans vacationed in the United States in search of cheap hotels and food, returning home with suitcases full of electronics and clothing.
The devaluation of the euro comes amid an energy crisis in Europe caused by the Russian invasion of Ukraine.
There is concern that this crisis could cause a recession with unforeseen consequences, a shadow that intensified on Monday (11/7 (due to the reduction in Russian gas supply, amid a shutdown for maintenance of the Nord gas pipeline). Stream, and concern that inflation will continue to rise.
There is growing uncertainty about the continuity of Russian gas supplies
Russian energy giant Gazprom has started ten days of maintenance on its Nord Stream 1 pipeline, with Germany and other European countries anxiously watching whether gas will return after this operation. The fear is that Russia could take the opportunity to close the valves.
"There is a lot of fear about what could happen in the energy field with the war. Let's see if we continue to receive gas from Russia", says Juan Carlos Martínez, professor of economics at IE University in Spain.
Added to this conflict is the blow that the European currency has received because interest rates are rising much faster in the United States, and this attracts capital to the world's largest economy.
"The most important cause of the euro's fall is the different speed in the monetary policy of the US Federal Reserve and the European Central Bank", argues Martínez.
Europe registers high inflation
For investors, yields on US Treasuries are higher than on European debt, making them prefer the dollar to the euro.
From this perspective, the European Central Bank is in a difficult position, trying to contain inflation while at the same time dealing with a slowing economy.
"The euro zone has not yet started raising interest rates. It should do so at its meeting at the end of July, but it will do so more slowly," added Martínez.
What are the consequences?
With eurozone inflation at its highest level since records began (8.6%), the currency's loss of value increases the cost of living by making imports more expensive.
At other times in history, a weaker currency was not necessarily bad news, because governments used currency depreciation as a way to stimulate economic growth as exports became more competitive.
At the present time, however, this is not the case.
Inflation raises the cost of living for Europeans
"Each time the dollar appreciates, it costs more in euros to buy a barrel of oil. This is the big problem we see now", explains the economist.
That's why a weak euro has contributed to fuels exceeding all-time highs, piercing consumers' pockets.
The situation is worrying for countries in the region, considering that around 50% of eurozone imports are in dollars.
Fuel prices are breaking records
If the war in Ukraine ends soon, which experts consider unlikely, the euro's devaluation could be halted.
The second alternative to curb the devaluation is to raise interest rates in the euro zone.
"A more aggressive policy from the European Central Bank would be needed, something that does not seem to be on the table at the moment", says Martínez.
Latin America
In the case of Latin America, the euro-dollar peg "has no direct impact on the region," said Elijah Oliveros-Rosen, senior economist at S&P's Latin America Global Economics & Research division.
What this situation reflects, he adds, is that there is an appreciation of the dollar in general.
To curb devaluation, the European Central Bank would need a more aggressive policy
End of Podcast
"The dollar's strength is not only against the euro, but also against most emerging market currencies, including Latin America."
Argentina, Chile and Colombia are the three countries that have suffered the worst devaluations of their currencies against the dollar so far this year.
The Brazilian real has depreciated 14% against the dollar since April, when the national currency was stronger, amid the rise in commodities as a result of the war in Ukraine.
In the recent period, in addition to the effect of high interest rates in the United States and the fear of global recession, which contribute to the appreciation of the dollar, the real has also lost strength due to the concern with fiscal lack of control, after the approval of the Proposed Amendment to the Constitution that creates a series of benefits on the eve of the election.
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