The value of the euro rose against the US dollar to the highest level since April 2022. Last year, the European currency was valued below the dollar for some time, but now it has risen above it. According to BNR home economist Han De-Young, this is a consequence of European interest rate policy.
The value of the euro rose above 1.09 US dollars. Before the Russian invasion of Ukraine in February 2022, the Euro was still above $1.14 USD. After that, the value of the currency steadily declined. In July last year, the euro was worth less than the dollar for the first time in twenty years. This was mainly due to fears of a recession in the Eurozone and rising interest rates in the US, as the Federal Reserve (Fed) started raising interest rates before the European Central Bank in 2022.
As a result, the dollar became more attractive and its value increased. At the end of September, the euro bottomed at $0.95. “The euro is rising on the expectation that the European Central Bank will raise interest rates by at least another 1 percent, while the Fed may only have 0.5 percent in store,” says de Jong.
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Several leaders of the European Central Bank (ECB), including President Christine Lagarde and Governing Council member Claes Nott, have already indicated in recent days that interest rates will be raised further in the coming months to curb soaring inflation.
Knot said this weekend that the European Central Bank will raise interest rates by half a percentage point both times in the February and March meetings, and they will continue to rise after March. By making borrowing more expensive, the ECB is trying to curb demand in the economy and this should curb inflation in the Eurozone.
Meanwhile, fears of a severe recession in the eurozone receded and expectations at most predicted a moderate economic contraction. The US central bank is also expected to raise interest rates less sharply in the near future, putting pressure on the dollar.
According to De Jong, the appreciation of the euro has a direct impact on the economy in Europe. “A stronger euro reduces inflation because imported goods become cheaper.” De Jong can’t say if the increase will continue. “But the euro is probably still relatively cheap against the US dollar.”
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