As of Wednesday, July 13, the euro and the U.S. dollar are worth the same. For the first time since December of 2002, the value of the euro has been pushed down to parity with the dollar, thanks to increasing fear of a recession and the potential loss of Russian energy in Germany.
In 2022 alone, the value of the euro has dropped more than 11%, according to The New York Times. Like any other asset or stock, the value of currencies depends on how well investors think it will perform. As investors watch for a recession in Europe, they've bought up U.S. dollars in the hope that the dollar's value will remain stable. As a result, the dollar has seen a bump in value, helping it to reach parity with the euro.
The fact that the euro and dollar have reached parity for the first time in 20 years might be historic, but it isn't surprising. Analysts and strategists with JPMorgan Chase
"It is hard to find much positive to say," HSBC said regarding the euro in a letter to clients early this month. "The economic news is very challenging."
Also early in July, at Nomura, strategist Jordan Rochester predicted that the ero would reach parity with dollar by the end of August. He first made a similar prediction in April. However, he says that parity actually doesn't mean that much.
"It's very much human psychology," Rochester said. "It's just a round number."
Parity might not have a significant meaning, but the euro's drop in value is another sign that a recession is incoming.
The Eurozone currency started to suffer following the Russian invasion of Ukraine in February. COVID-19 restrictions in China have also been hampering production there, limiting imports to the Eurozone.
Inflation rates are at record-highs, and central banks in the U.S. and Europe have begun introducing higher interest rates in an effort to combat it, but the European Central Bank (ECB) hasn't taken action as significant as that taken by the U.S. Federal Reserve.
"The E.C.B. will struggle to keep up with the decisiveness that the Fed has in tackling inflation or pushing rates up," Ebrahim Rahbari, the global head of foreign-exchange analysis at Citi, said. "It'll be another testing time for the eurozone."
The euro was introduced in 1999 and initially struggled to gain traction, but it has since come to serve as the currency for 19 European countries. The currency saw a dip in the early 2010s but had regained its value prior to 2022. Still, the euro hasn't been seen as a safe haven like the dollar.
