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The euro struck parity with the dollar on Tuesday, July 12 for the first time in nearly 20 years as a cut in Russian gas supplies to Europe heightened fears of a recession in the eurozone. The European single currency hit exactly one dollar – its lowest level since December 2002 – before rising to $1.0023.
For the first time in 20 years, the euro and the dollar have equalised, indicating that the market believes that the Russian invasion of Ukraine will cause a severe downturn in the European economy. Currently, 1 euro is equal to 1 US dollar. With the change, European businesses and consumers will pay more for the goods and services they import while seeing an immediate decrease in the price of European exports on global markets.
Since early February, when it was worth over $1.13, the value of the euro has fallen dramatically. Fear that Russia, the primary energy supplier for the EU, will entirely cut off gas deliveries in response to Western sanctions has caused the slump to pick up speed in recent weeks.
So far, 12 European Union nations have experienced a whole or partial decrease in Russian gas. For a scheduled 10-day maintenance, supplies from the Nord Stream 1 pipeline were suspended earlier this week. It is unknown whether the Kremlin will order the suspension to continue through that date and last indefinitely.
"Let's prepare for a total cut-off of Russian gas. "This is now the most likely option," Bruno Le Maire, France's finance minister, has said.
The euro will be closely watched to see if it manages to surpass the value of the US dollar. When the euro was valued at $0.99 in November 2002, this occurrence occurred last.
However, Russia's all-out assault on Ukraine has turned the tables and severely hurt the economy of the EU. Gas prices have reached record highs as a result of the invasion's disruption of the energy markets.
The unexpected shock has resulted in both a steady slowdown in economic activity and record-breaking inflation throughout the eurozone, with a total of 8.6 percent in June.
The spectre of stagflation, a perilous concoction that stunts growth while keeping things prohibitively expensive for both consumers and businesses, has returned as a result of the interaction of the two causes.
The European Central Bank has already increased interest rates in an effort to rein in inflation, and it plans to do so in the future as things get worse.
As Croatia completes the process of joining the eurozone and becomes the 20th EU member state to adopt the common currency, the euro and the dollar have reached parity. The European Commission is expected to announce a new downward revision to its updated economic outlook on Thursday.
Brussels has purposefully refrained from issuing any definitive predictions about an impending recession for the time being and is still optimistic that the eurozone will be strong enough to withstand the disruption caused by the conflict in Ukraine and the energy issue.
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Nikhil Pandey
Nikhil Pandey is TEAM LEAD - DIGITAL CONTENT with WION. He follows politics, sports and entertainment.He tweets at @Nikhil_Pandey04.
