Euro trades at two-decade low against the dollar; Know why the European currency is in bad shape

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• Aug 26, 2022 | digital desk

Fears of a recession in Europe have intensified due to inflation and uncertainty about energy supply due to the Russia-Ukraine war...

Digital Desk: The price of the European Union's currency, the Euro, has fallen by about 12 percent this year, and its exchange rate has reached the US dollar for the first time in 20 years. The difference between the two currencies is less than one cent. On Monday, the price of the euro came down to around $ 1.004.

Fears of a recession in Europe have intensified due to inflation and uncertainty about energy supply due to the Russia-Ukraine war. The reason for this is the sharp fall in the value of the euro. Before the war, 40 percent of the EU's gas came from Russia. But now this situation has changed.

European countries are working to reduce their dependence on Russian oil and gas. At the same time, Russia has also reduced the supply of gas to some European countries. It recently reduced its gas supply to Germany via the Nord Stream pipeline by 60%. Along with the energy crisis, Europe is also going through an economic slowdown. The European Central Bank has indicated to increase interest rates this month to rein in inflation. This is the first time since 2011 that Europe's central bank is going to raise interest rates.

The eurozone's inflation rate is 8.6%. Germany has had a trade deficit for the first time since 1991. This is because oil prices have risen significantly, and supply chain constraints have increased the cost of imports. Experts say that the Reserve Banks of many countries, including the US Federal Reserve, have increased interest rates. At the same time, there is a slowdown in economic growth. This could further keep the pressure on the euro. This allows investors to turn to the US dollar for a safe investment. 

The US Federal Reserve recently raised interest rates by 75 basis points and has indicated further increases this month. George Saravelos, head of FX research at Deutsche Global, said in a note last week that the trend towards the US dollar would increase if Europe and the US were hit by a recession. He said that the price of the euro could go from $ 0.95 to $ 0.97. This may be good news for Americans planning to visit Europe, but it will not be good news for economic global stability.