The euro has hit parity with the dollar, falling to its lowest level in 20 years and even skirting just below a one-to-one exchange rate with the U.S. currency at times this week.
It’s a psychological barrier in the markets. But psychology is important, and the euro’s slide underlines the foreboding in the 19 European countries using the currency as they struggle with an energy crisis caused by Russia’s war in Ukraine.
It means the European and American currencies are worth the same amount.
A currency’s exchange rate can be a verdict on economic prospects, and Europe’s have been fading. Expectations that the economy would see a rebound after turning the corner from the COVID-19 pandemic are being replaced by recession predictions.
More than anything, higher energy prices and record inflation are to blame. Europe is far more dependent on Russian oil and natural gas than the U.S. to keep industry humming and generate electricity. Fears that the war in Ukraine will lead to a loss of Russian oil on global markets have pushed oil prices higher. And Russia has been cutting back natural gas supplies to the European Union, which EU leaders described as retaliation for sanctions and weapons deliveries to Ukraine.
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