Euro slides to 20-year low against US dollar as recession fears intensify

The Euro hit a 20-year low (weakest since December 2002) on Tuesday, valuing 1.029 against the US dollar in the shadow of recession in the Euro Zone. The currency shared by 19 Euro member states continued to weaken, losing over one percent against the US dollar. As per the European Central Bank, the reference rate of the European currency was 1.0455 against the American dollar. Notably, the Euro surged to an all-time high at 1.1455 against the dollar earlier on February 6, days before the war in eastern Europe pushed the whole continent into a crisis. 

A report in Wall Street Journal stated that the drop in currency rates was triggered by skyrocketing prices of oil and gas vis a vis the ongoing war in Ukraine. Energy prices further soared high after workers held strikes at Western Europe’s largest gas fields in Norway. Interestingly, Europe is not the only currency that continues to lose its value. This week, the Swiss franc and Japanese yen, also slipped considerably low against the dollar. 

Economic activity affected 

The bank stated that the European currency has dropped over nine percent against the US dollar since the beginning of this year. Notably, the fall of the Euro has also been related to a reduction in economic activity. As per the Manufacturing Purchase Mangers’ Index (PMI), an indicator to gauge the direction of economic trends, the Euro area fell to 52.1 in June from 54.6 a month earlier.

“Eurozone manufacturing has moved into decline in June, with production dropping for the first time in two years amid a steepening downturn in demand. Orders for goods have fallen at an accelerating rate over the past two months, dropping in June in every country surveyed except the Netherlands, and even here the rate of growth has weakened markedly in recent months.”

Credits: S&PGlobal

Last week, EU’s statistics agency Eurostat said that prices of goods and services rose by 8.6% in June. The inflation rate was higher than the 8.1% surge in May, which itself was the highest rise since 1997 (two years after Euro was launched). The prices of consumer goods were particularly affected. As per the agency, the cost of food, alcohol and tobacco rose by nearly 9% annual rate last month. Prices of non-energy industrial goods showed a 4.3% inflation rate, 0.1 % higher than that in May. However, providing respite to consumers, prices of services cooled slightly from 3.5% in May to 3.4 % in June. 

(Image: Unsplash)

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