A first since 2002. This Friday, July 8, the euro fell below 1.01 dollar: the currency is therefore approaching parity with the dollar. Last spring, however, it was worth around 1.2 dollars. The euro thus lost 13.2% over one year. Such a depreciation worries the markets and investors.
Stéphanie Villers, economist specializing in the euro zone, first qualifies the phenomenon. ” The euro is deteriorating against the dollar, not against all the other currencies. It is not so much that the euro is plunging, it is above all that the dollar is strengthening, and that the American economy is showing itself to be more robust. Compared, in particular, to the shocks linked to the war in Ukraine ».
How can this depreciation be explained?
The depreciation stems in particular from American decisions. ” Inflation has been higher in the United States, due in particular to the budgetary policies led by Joe Biden. Its massive stimulus packages have spurred price rises more sharply, as well as wage increases. So the Federal Reserve, to avoid this galloping inflation, had to raise its interest rates more quickly,” develops Stephanie Villers.
“And she was quite clear on that: she will continue to increase them as long as she considers that inflation is too high. It will in any case support the dollar in the medium term, even if US growth weakens this year, after the loss of household purchasing power”.
More expensive imports and a less attractive area
The United States was also less affected by the consequences of the war in Ukraine. On the contrary, the euro zone, dependent on gas and oil imports, was directly affected by the rise in prices. ” Our energy bill has skyrocketed. This is called imported inflation, since the prices of raw materials, which have become higher, are invoiced in dollars “says the economist. The more a currency depreciates, the higher the import costs. It is moreover this energy bill, denominated in dollars, which risks weighing the most on the European trade deficit.
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Moreover, with a weaker currency, the euro zone becomes less attractive for investors, while the United States is considered more stable.
Specific situations may have amplified the depreciation of the euro, even if they are not the cause. For example, the German trade balance went into deficit for the first time since reunification, which addresses “ a signal of weakness from the leading economic power in the euro zone ».
I think the ECB’s monetary policy, once readjusted to be more in line with the Fed, will be effective enough to allow the euro to stabilize.Stéphanie Villers, economist.
For now, this means that all dollar transactions are going to be more expensive for the Eurozone. Stéphanie Villers points to a rare positive effect for the European economy: “ There is a rather buoyant factor. The devaluation happens during a summer period, so it tends to boost tourism from the United States. Americans are encouraged to come and spend more, especially in France. But that won’t make up for everything either. ».
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Upcoming ECB decisions
The impact of this type of depreciation is nuanced by exchanges within the euro zone itself: The top three customers in France are Germans, Italians and Belgians. So whether the euro is weak or strong does not matter ».
Above all, Stéphanie Villers expects the situation to recover soon, after the European Central Bank increases its own rates. ” I believe that the ECB’s monetary policy, once readjusted to be more in line with the Fed, will be effective enough to allow the euro to stabilize, recover and gradually appreciate. This would allow a better balance between the American economy and the European economy”. However, this may take some time.
For now, the ECB has refrained from doing so. Indeed, an excessively sudden rise in interest rates can harm growth: when a central bank raises these rates, it costs more to borrow, which discourages borrowers and investments. It is therefore a question of finding the right dosage ».
Even for the United States, an over-appreciation of the dollar against the euro would not necessarily be good news. ” It does not play in favor of their competitiveness. For example, what we buy in the United States, denominated in dollars, will cost us more. So we may be less inclined to buy certain American products,” summarizes Stephanie Villers.