The euro reached the same level as the dollar on Tuesday, July 12, for the first time since it was put into circulation, which has a number of effects, including higher energy prices, including for Romania, which will cause new inflation, according to Bani.md.
Yesterday, 1 euro equals 1 dollar. For comparison, at the beginning of February, the euro was worth over $ 1.13, followed by a sharp fall. Thus, the dollar, known as a refuge currency in turbulent times, appreciated by 14% since the beginning of the year.
The euro has not reached this threshold, equal to the dollar, since the year it was put into circulation 20 years ago. The last time the euro fell below the dollar level was in November 2002, when the euro was worth $ 0.99. Since then, the euro has enjoyed steady growth, reaching nearly $ 1.60 in the summer of 2008, when the Great Recession wreaked havoc on the United States.
What were the reasons for the appreciation of the dollar and the depreciation of the euro?
For several months, the euro has been under pressure from financial markets due to the outbreak of war in Ukraine and the relatively limited measures taken by the European Central Bank to combat high inflation.
The fall has accelerated in recent weeks, as fears have spread that Russia, the EU’s main energy supplier, will completely cut off gas flows in retaliation for Western sanctions. So far, 12 EU countries have suffered a total or partial reduction in Russian gas.
In addition, on Monday, Russia announced that it is stopping gas supplies to Germany for 10 days through the Nord Stream 1 gas pipeline for annual maintenance work, which further exacerbated this fear. It is unclear whether the Kremlin will order the suspension to be extended beyond this deadline and become indefinite.
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In this context, it is important to remember that in times of turbulence such as the present, investors consider the US currency as a traditional safe haven.
In addition, currently, the American economy performs better than the monetary union, says Adrian Codîrlașu, vice president of CFA Romania, for Economedia. The same argument is put forward by Ciprian Dascalu, the chief economist of BCR: “Economic growth in the US is more resilient and significantly less exposed to shocks related to Russia.”
In addition, the Federal Reserve (EDF) is raising the dollar interest rate much faster than the European Central Bank in euros. If the Fed has already made several increases, the ECB has not made any, says Codirlova. According to him, the interest rate differential has reached the dollar.
What are the effects of the euro dollar parity ?
A large part of the world’s goods are priced in dollars: oil, wheat, corn, aluminum, copper, steel.
And then, when we import them – because we import resources – they will cost more lei, which has an impact on inflation and the trade deficit, which they increase.
In addition, if Moldova imports raw materials paid for in dollars and processes and exports them to the EU, then the value of exports decreases.
A stronger dollar means commodity prices expressed in higher lei, implicitly upward pressures on inflation and the deepening trade deficit.