For the first time in nearly two decades, the exchange rate between the euro and the dollar is roughly equal.
This unusual event is a boon for American tourists in Europe, but not so much for Europeans visiting the United States
The parity between the two currencies comes after the euro has depreciated nearly 20 percent against the dollar over the past 14 months.
The euro was created on Jan. 1, 1999, nearly six years after the Maastricht Treaty established the European Union itself. But for the first three years, the euro was an “invisible currency” used only for accounting purposes.
Then, in 2002, banknotes and coins were officially put into circulation. In the decades since, the euro has traded at a higher price than the dollar, even reaching a value of $1.60 per euro during the financial crisis of 2008. According to the Federal Reserve, the average value of a euro over the past decade has been $1.18 data.
However, the dollar has risen against most major currencies this year as the Fed’s interest rate hike has made it a safe haven for global investors seeking to stave off soaring global inflation.
For Americans, a stronger dollar should help ease the pain of four years of hyperinflation, but for Europeans, a weaker euro will make travel more difficult and exacerbate the impact of higher consumer prices.
What caused the euro to fall?
Several key factors have contributed to the euro’s recent decline. First, the EU economy is slowing down, and fears of recession are rising.
Kristalina Georgieva, managing director of the International Monetary Fund, said this week that the business environment in the EU’s 19 member countries has “darkened significantly” in recent months.
“We are in choppy waters,” Georgieva told Reuters. “It’s going to be a tough 22 years, but it could even be a tougher 2023.”
EU countries have also been crippled by the ongoing energy crisis brought on by the war in Ukraine and the subsequent Western sanctions against Russia. The situation in Germany is so dire that the country’s minister of economic affairs and climate action, Robert Habeck, warned in June that it could mean a potential “Lehman Brothers moment” for Germany if Russia cuts its gas supplies. The investment bank collapsed in 2008.
“In fact, a heavy cloud currently hangs over European assets, which were among the world’s worst performers yesterday as the chaotic gas situation and the prospect of recession loomed ever closer,” Deutsche Bank strategist Jim Reid wrote in a research note on Wednesday.
The energy crisis has created so much instability in Europe that Deutsche Bank’s chief executive argued last month that a recession in Europe is “likely” in 2023.
Another key driver of the euro’s recent decline is the loose monetary policy of the European Central Bank (ECB). While the Federal Reserve has raised interest rates three times this year in an attempt to fight inflation, including the most aggressive rate hike since June 1994, the ECB has so far not raised rates.
“欧元疲软背后的另一个因素是，人们越来越怀疑欧洲央行能否像最初设想的那样开始积极的加息周期，”里德说。“鉴于对经济衰退的担忧，昨天全球出现了对央行更加鸽派的预期，但这种预期在欧洲尤为普遍。”
However, the ECB said a rate hike could come in July, although some officials expressed concern that the central bank could end up raising rates amid slowing growth and eventually trigger a recession.
“In an ideal world, you would want to stimulate the economy but lower inflation at the same time,” Klaas Knot, a member of the ECB’s governing council, told Bloomberg this week. “Unfortunately, that’s not something we can do, we have to make a choice; in that case, our mandate is very clear – we have to choose to lower inflation.”
This story originally appeared on Fortune.com