The euro and the dollar have equalised for the first time in 20 years, indicating that the market believes the Russian invasion of Ukraine will cause a severe downturn in the European economy.
Currently, one euro equals one US dollar. With the change, European businesses and consumers will pay more for imported goods and services while seeing an immediate decrease in the price of European exports on global markets.
The euro’s value has dropped dramatically since early February when it was worth more than $1.13. Fear that Russia, the EU’s primary energy supplier, will completely halt gas deliveries in response to Western sanctions has accelerated the slump in recent weeks.
So far, 12 EU countries have experienced a complete or partial reduction in Russian gas supplies. Supplies from the Nord Stream 1 pipeline were suspended earlier this week for a 10-day maintenance period. It is unclear whether the Kremlin will order that the suspension continue until that date and continue indefinitely.
The euro will be closely watched to see if it can outperform the US dollar. This happened last in November 2002, when the euro was worth $0.99.
However, Russia’s all-out assault on Ukraine has flipped the script and severely harmed the EU’s economy. As a result of the invasion’s disruption of the energy markets, gas prices have reached all-time highs.
The European Central Bank has already raised interest rates to control inflation, and it plans to do so again if things worsen.
The euro and the dollar have reached parity as Croatia completes the process of joining the eurozone and becomes the 20th EU member state to adopt the common currency. On Thursday, the European Commission is expected to announce a new downward revision to its updated economic outlook.
For the time being, Brussels has refrained from making any definitive predictions about an impending recession, remaining confident that the eurozone will be strong enough to withstand the disruption caused by the Ukraine conflict and the energy crisis.
