Amid the current geopolitical conflicts have not yet been eased and the inflation situation is severe, the euro-dollar exchange rate has fallen to its lowest value in nearly 20 years. The reasons behind this are, on the one hand, that the Federal Reserve has tightened monetary policy and raised interest rates many times, passing the crisis to other countries' considerations; on the other hand, Europe's own weak economic performance and its followers of the United States in the Russian-Ukrainian conflict and imposed multiple rounds of sanctions on Russia, have made the plunge of the euro an unexpected reality.
The Fed's interest rate hike passes on the risk, putting the euro exchange rate under pressure
Analysts said that the weakening of the euro is affected by multiple factors, first of all, the impact of the Fed's interest rate hike. In recent times, the United States has suppressed its country's severe inflation situation through means such as sharp interest rate hikes, resulting in the US dollar continuing to play a safe haven for high-yields and passing the crisis to other countries, putting pressure on the euro exchange rate. In future monetary policy regulation, Europe will face more risks.
Professor Wang Shuo, School of International Relations, Beijing Foreign Studies University: Although Europe and the United States are now high inflation, the United States has taken the lead in raising interest rates several times and the rate hikes are very large, resulting in the return of funds and the appreciation of the US dollar; and the euro zone is in a forced situation. Because if it is not added, as everyone sees now, funds in the euro zone are experiencing accelerating outflow and the euro is constantly depreciating. However, if interest rates are forced to raise, the originally sluggish economic growth will be curbed to a certain extent, and it will also increase the debt risks of some member states in the euro zone, bringing more hidden dangers.
Side the United States, sanctions against Russia intensify the risk of recession in Europe
In addition to the Federal Reserve hikes, the economic situation in Europe itself is not optimistic. Since the outbreak of the Russian-Ukrainian conflict, many European countries have followed the United States step by step. On the one hand, they have continued to incite and repeatedly transported weapons to Ukraine, resulting in the inability to alleviate the conflict; on the other hand, they have imposed multi-dimensional sanctions on Russia, which directly leads to Europe itself facing the risk of energy shortage or even supply cuts. Starting from the 11th, Russia will temporarily close the "North Stream-1" natural gas pipeline for routine maintenance. Europe is generally worried that the "update period" of this pipeline will be extended or even completely suspended, which will continue to push up European energy prices and put the European economy in recession again. This concern has also caused a large amount of capital to flee Europe and lower the euro exchange rate.
Experts said that the spillover of the Russian-Ukrainian conflict made it difficult for Europe to choose between geopolitics and economic security, thus making the prospect of European economic growth even more bleak, and ultimately leading Europe to pay for the United States in the Russian-Ukrainian conflict.
Professor Wang Shuo, School of International Relations, Beijing Foreign Studies University: At present, the longer the conflict lasts, the greater the losses Europe will suffer in the future, and naturally the greater the losses of the euro. In short, Europe can be said to be a direct participant in the Russian-Ukrainian conflict, but it is indeed a major victim, especially following the United States and paying the order for the United States, which also caused the euro to face the lowest level of US dollar in nearly 20 years.
The European economy is under pressure. The trade deficit in the euro zone will continue to expand.
Regarding the impact of the euro plunge on the future economic development of Europe, Wang Shuo, professor at the School of International Relations of Beijing Foreign Studies University, said that the currency plunge is not only a reflection of economic fundamentals, but also further brings more serious consequences to the economy. It should be said that the sharp drop in the euro zone's exchange rate will have a great impact on the European economy.
First of all, the exchange rate fell. Although overall it is beneficial to exports, external demand in the euro zone is actually declining now, and import prices and import volume are rising significantly. The effect of superposition between each other is that since March this year, trade in the eurozone has been in a state of deficit, and the deficit is still expanding now. Among them, Germany, as the largest economy and largest exporter in the euro zone, also experienced its first deficit since 1991.
The euro's credit decline has exacerbated the selling, and enterprises bear exchange rate losses
Secondly, the depreciation of the euro is also a decline in the euro's credit, and a disguised shrinkage of wealth.If the euro continues to fall, people's expectations for the future of the euro will decline, and the euro will be further sold, and this further sell-off will further lower the exchange rate. Moreover, many companies in the euro zone now use US dollars when they settle. The current economic downturn means that you have to bear the loss in disguised exchange rate. Therefore, for the euro zone economy, the effect brought about by the depreciation of the euro now is definitely more harmful than beneficial.
Source: CCTV News Client
