EUR to USD Rate targets Parity as Eurozone Concerns Remain
The euro is staring at parity with the US dollar. The EUR to USD exchange rate crashed to 1.0065 on Monday as concerns about the hawkish Federal Reserve continued. The pair also plummeted as investors remained concerned about the slowing European economy.
High inflation
Inflation in the Eurozone hit a fresh record high in June at 8.6% on a year-on-year basis (YoY). As the cost of living continues to rise within the continent, the reported figure exceeded the prior month’s 8.1% and analysts’ forecast of 8.4%.
In June, the European Central Bank (ECB) hiked interest rates for the first time in 11 years. This follows concerns that consumer prices may surpass the target level of 2%.
Notably, the Russia-Ukraine war and subsequent sanctions by the West are largely behind the inflationary pressures experienced in the continent. Notably, Russia is a key supplier of raw materials, food, and energy to Europe. Indeed, concerns over the flow of supplies – especially of food and energy – has heightened inflation in the continent and increased the likelihood of a recession.
ECB’s position
The European Central Bank is caught in a dilemma. On the one hand, there is an urgent need to address the high inflation. The minutes released in the past week showed ECB officials’ position that the central bank may have to increase interest rates more aggressively to deal with the heightened inflationary pressures.
However, the rising concerns over the possibility of a recession may limit ECB’s capacity to tighten its monetary policy. If it moves too fast to tighten its monetary policy, it may negatively impact the region’s economic growth at a time when it is already experiencing a slowdown.
As the central bank strives to manage both risks, investors will be keen on economic data and the subsequent movement of EUR/USD. This will offer further cues on whether the region will fall into a recession by the end of the year or in 2023.
Implications for the EUR to USD rate
There are serious implications for the performance of the EUR to USD exchange rate. First, it means that many American companies with an exposure to Europe will be hit. That’s because these firms will receive less funds in dollar terms. On the other hand, many European firns with large operations in the US will report better results.
Second, it means that the imbalance between senders and recipients has jumped. For example, Europeans sending money abroad are now having to pay more money than they used to a few months. Similarly, Europeans receiving dollars are now receiving more money. At MoneyTranfers, we can help you save money when sending money abroad.
