Reporter Zhao Enting compiled
European Central Bank data showed that on the 11th, the exchange rate of euro against the US dollar fell from 1 to 1.0163 the previous day to 1 to 1.0098, and the cumulative decline since the beginning of this year has exceeded 11%. Data from the European foreign exchange trading market showed that the euro against the US dollar fell to 1 to 1 on the 12th, which was the first time the euro has been pared with the US dollar since December 2002.
German Business Daily website analyzed that the continued decline in the euro-USD exchange rate is related to the strengthening of the dollar, the high inflation in euro zone countries, the spread of the European energy crisis and the rise in European high debt under the expectation of the European Central Bank interest rate hike. Citigroup currency analyst Rabari expects the euro to continue to fall after falling to parity with the US dollar.
On July 12, a man took a photo in front of an euro sculpture in Frankfurt, Germany. ( Xinhua News Agency )
[European economy is in dire straits]
Euro exchange rate ushered in a historic moment. The euro group held a meeting in Brussels, Belgium to focus on discussing the economic situation, policy challenges of the euro zone under the current global context and how to deal with the current high inflation . European Commission Executive Vice President Dongbrovskis said that in view of the current many uncertainties and risks, the economic growth forecast for this and next two years will be lowered. He warned that continued high energy prices are gradually affecting other areas of the economy, making inflation more deeply rooted and widespread.
The European Commission's member of economic affairs, Gentiloni, said that the current European economy is in trouble. The Ukrainian crisis hit economic confidence and pushed up inflation, causing high uncertainty. He said that the EU plans to take a series of measures to alleviate the inflationary pressure brought by natural gas imports.
Euro Group Chairman Donoho said he would be committed to maintaining debt sustainability and long-term growth prospects and avoid increasing inflationary pressures. The European Commission also called on EU member states, especially those with high debt, to move from broad stimulus policies to more prudent policies and to adjust policies at any time to adapt to the rapidly changing economic situation.
This is the scene of the Euro Group meeting taken on July 11 in Brussels, Belgium. (Xinhua News Agency)
In May this year, in the assessment of the impact of the situation in Ukraine on the EU's economy, the European Commission lowered its EU's economic growth forecast for this year from 4% forecast in February to 2.7%, lowered its economic growth forecast for next year from 2.8% to 2.3%, and expected the EU inflation rate to be 6.8% this year and will drop to 3.2% in 2023.
Immediately afterwards, the meeting of ministers of the economy and finance of EU member states was held in Brussels on the 12th, focusing on issues such as the EU's economic situation and fiscal sustainability . The meeting pointed out that due to factors such as the soaring price of energy and commodities, , and the Ukrainian crisis, the uncertainty faced by the EU economy has increased. The proportion of public debt of some EU member states in GDP (GDP) is still very high, much higher than the level before the new crown epidemic. Rising prices put pressure on actual income, coupled with tightening financing conditions and fluctuations in the exchange rate, enterprises, households and governments will be under pressure. The meeting called for vigilance against the rapid rise in inflation and to protect vulnerable groups through targeted measures when necessary to prevent economic deterioration.
meeting pointed out that in the medium and long term, some EU member states face high risks in terms of fiscal sustainability. High public debt will hinder economic growth and have negative spillover effects in the euro zone. In addition, the meeting also approved the provision of 1 billion euros of financial aid to Ukraine through preferential long-term loans. Since the outbreak of the Ukrainian crisis, EU financial support for Ukraine has reached 2.2 billion euros.
This is the European Central Bank headquarters building photographed on July 7 in Frankfurt, Germany. (Xinhua News Agency)
[European trend reflects changes in the volume of Europe and the United States]
In 1992, the EU Summit signed the " European Union Treaty " in Maastricht, Netherlands, and decided to start the implementation of a single currency euro on January 1, 1999, and implement a unified monetary policy in countries that implement the euro.In 1999, 11 of the 15 member states of the EU at that time—Germany, France, Italy, Netherlands , Belgium , Luxembourg , Ireland , Spain, Portugal, Austria and Finland —meet the four unified standards for European economic integration and transition to the euro established by the Treaty of the European Union, and the euro thus became the single currency of the 11 countries.
In January 1999, the euro entered the international financial market, allowing banks and stock exchanges to trade euros. Euro banknotes and coins were officially circulated since January 2002. In July of the same year, the local currencies of euro zone member countries were withdrawn from circulation, and the euro became the only legal currency in the euro zone.
Greece joined the euro zone on January 1, 2001, opening the prelude to the euro zone expansion. On January 1, 2007, Slovenian joined; on January 1, 2008, Cyprus and Malta joined; on January 1, 2009, Slovak joined; on January 1, 2011, Estonian joined; in 2014 and 2015, Latvia and Lithuanian joined successively. So far, the number of euro zone member states has increased from the initial 11 to 19. On the 12th of this month, the meeting of Ministers of Economic and Finance of EU member states approved Croatia to officially join the euro zone on January 1, 2023, and the number of member states in the euro zone will reach 20 by then.
On July 12, European Central Bank President Lagarde , Croatia Vice Prime Minister and Finance Minister Marichi, EU rotating presidency Czech Finance Minister Stanyula, European Commission Executive Vice President Dongbrovskis and European Commission Commissioner Gentiloni (from left to right) attended the signing ceremony of Croatia's legal documents to join the euro zone in Brussels, Belgium. (Xinhua News Agency)
At first, the euro performed well against the US dollar, with 1 euro vs. 1.18 US dollars, but from 2000 to 2002, the euro vs. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. Since then, the euro began to rise against the US dollar, and by 2008, the euro reached historical highs of 1 to 1.6 twice on April 22 and July 15 of that year, respectively.
2008 financial crisis and European debt crisis in 2009 caused the euro to enter a strong period of fluctuation, falling to a level of 1 to 1.2 in 2010. According to the Euro-USD exchange rate trend chart of " New York Times ", from 2011 to 2015, the Euro-USD exchange rate fluctuated significantly between 1-1.2 and 1.5, and plunged again around 2015, falling to around 1-1.1. Although it rebounded to 1 to 1.2 levels in 2018, due to factors such as the new crown epidemic and the slow economic recovery in the post-epidemic era, the euro-USD exchange rate continued to fluctuate at a low level and continued to fall, until now parity has returned to its current situation.
The trend of the euro against the US dollar also reflects the trend of changing economic volume between the EU and the United States. According to data from World Bank , the total EU economy in 2008 was about US$16.3 trillion, surpassing the US$14.77 trillion. But in 2021, the total EU economy will be about $17.09 trillion, while the United States has reached about $23 trillion.
On June 15, Federal Reserve Chairman Powell attended the press conference. The Federal Reserve announced that the rate hike of 75 basis points on the same day, which is the largest rate hike of the Federal Reserve since 1994. (Xinhua News Agency)
[U.S. monetary policy and geopolitical impact]
The weak euro exchange rate means the dollar is strengthening. Due to the continuous rise in the US inflation rate since the beginning of this year, the year-on-year increase of the Consumer Price Index (CPI) has been above 6% for eight consecutive months since October last year. The CPI in May, announced in June, rose 8.6% year-on-year, hitting a new high since December 1981. In order to curb inflation, the U.S. Federal Reserve hikes 25 basis points in March this year, the first rate hike from the Federal Reserve since December 2018.
With the opening of the interest rate hike cycle , the Federal Reserve raised interest rates by 50 basis points in early May, and then directly raised interest rates by 75 basis points in mid-June - this is the largest single rate hike by the Federal Reserve since 1994. At the same time, the Federal Reserve has reduced its balance sheet by nearly $9 trillion since June 1.
Fed rate hike and " balance sheet reduction " mean that the US dollar is back and shortage, and the US dollar exchange rate has strengthened. In addition to the sharp drop in the euro against the US dollar, the pound against the US dollar has fallen to 1 pound against the US dollar a few days ago, a new low in 27 months. At the same time, the exchange rate of the Japanese yen to the US dollar has also depreciated significantly this year, and the exchange rate of the Japanese yen to the US dollar has fallen to the level of 1 US dollar against 137 yen, the lowest in the past 24 years.
Affected by the adjustment of the Federal Reserve's monetary policy, the European Central Bank has also followed the footsteps of central banks around the world such as the United Kingdom and Japan, raising interest rates by 25 basis points - the first rate hike since 2011, and has stopped net asset purchases from July 1. However, the euro fell sharply against the US dollar, weakening the European Central Bank's ability to quickly raise interest rates to cope with inflation. As the European Central Bank ends its bond purchase plan, financing costs in euro zone countries will rise sharply and the risk of debt crisis increases.
This is the " Nord Stream-1" gas pipeline related facilities photographed in the northern German city of Lubmin on July 11. (Xinhua News Agency)
Statistics released by the European Bureau of Statistics on July 1 showed that energy and food prices in the euro zone continued to soar, with inflation reaching 8.6% in June, setting a new record high. European Central Bank President Lagarde said that the current economic activities in the eurozone are affected by many adverse factors such as high energy costs, deteriorating trade conditions and high inflation in residents' disposable income, and face greater uncertainty.
Germany is the largest economy in the euro zone . Data released by the German Federal Statistics Office on the 4th of this month showed that Germany experienced a first-month trade deficit since 1991 in May, highlighting the impact of geopolitical turmoil caused by the Ukraine situation on Germany. Russia has always been an important export market in Germany, but exports have dropped sharply due to Western sanctions, and the soaring energy prices have broken Germany's trade balance. In May this year, Germany's exports to Russia decreased by more than 50% year-on-year; in the first five months of this year, Germany's imports from Russia increased by 54.5% year-on-year, and exports to Russia decreased by 29.8%.
40% of the natural gas in the German market comes from Russia. Given that Russia's natural gas supply to Germany has decreased by about 60%, Germany's trade deficit is expected to expand in June. On July 11, Russia's Nord Stream-1 pipeline to Europe's gas transmission began a 10-day annual maintenance. The market is worried that the gas dead period will be extended and the European energy crisis will be exacerbated, which may continue to drag down the euro exchange rate. Analysts from institutions such as Deutsche Bank , Citigroup, Nomura Securities , etc. predict that the euro-dollar exchange rate may fall to the level of 1 euro-dollar to 0.95 US dollars.
