The US dollar rises strongly against the euro after the publication of the latest inflation rate in the US. Thus, if yesterday the two most important currencies in the world reached parity for the first time in 20 years, it is broken this Wednesday: the single currency reaches a price of 0.9998 ‘greenbacks’, levels not seen in two decades, although After marking that level, the euro moves again around 1,001 dollars.
In addition, the ‘daring’ of the North American currency is not limited only to the euro. It has turned around with all of its major peers. The dollar index has come to trade at 108.4 points, new 20-year highs. The dollar is also appreciating strongly against the Japanese yen: a dollar is getting to be worth more than 137.6 yen. For many analysts, 140 yen per dollar is the red line for the Bank of Japan (BoJ) to abandon its negative rate and curve control monetary policy. An excessively devalued Japanese currency poses a high inflationary risk for the country.
Parity had not occurred since 2002. It has been possible to reach this point due to the very rapid downward spiral of the community currency, which has dropped 12% against the US currency so far this year. In February one euro was exchanged for 1.15 dollars. This difference has been that the Federal Reserve has stepped on the accelerator with more aggressive rate hikes while the ECB has managed other times to deal with economic challenges and inflation.
This new paradigm leaves the European Central Bank in a bind. It has so far withstood the aggressive type of monetary policy tightening implemented by central banks around the world, indicating it will raise borrowing costs by a quarter of a point this month. That is likely to keep a widening interest rate differential keeping pressure on the common currency.
The ECB has already ruled on what this situation implies. The European Central Bank (ECB) is watching the fall of the euro because of its effect on consumer prices, according to the first person in charge of monetary policy to comment on the currency since it almost broke parity with the dollar. “This is good news for activity, since it supports exporters, but unfortunately it raises inflation a bit,” the governor of the Bank of France, François Villeroy de Galhau, told France Info radio on Wednesday. exchange rate is not something we set, but we follow it because it counts for inflation.
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