Euro is losing strength and falling

The euro has been losing value since the beginning of 2022. Currency of the European Union since January lost more than 16% of its price. On the other hand, the US dollar or Russian ruble is growing. What are the reasons for this decline?

Euro is weakening

Since the beginning of 2022, we have witnessed the decline of the euro, the common currency of the European Union. There are several reasons why this happens. He replaced the pandemic situation conflict in Ukraine which became an incentive for sanctions against Russia by the West. Sanctions however, they appear as double-edged sword which punishes not only Russia but also the countries of the Union that use euro. The rise in inflation in the euro area, the passivity of the European Central Bank (ECB) and the unpreparedness of EU countries to cut off not only Russian oil and gas, but also other commodities, of which Russia was a major exporter, are reflected in the weakening of the euro.

Euro / US Dollar. Source: Tradingview

Dollar is rising against euro, which is already a traditional port of security in turbulent and uncertain times when asset prices are falling. Unlike the ECB, the US Federal Reserve (Fed) responded to rising inflation by raising the interest rate. The ECB has so far allowed inflation to rise and only recently announced raising interest rates. The European Central Bank has so far set a negative interest rate and feared how euro area countries with high sovereign debt would react to rising interest rates. There are concerns whether raising rates will not lead to a recession in countries like Italy or Greece.

Finally, it should be added that the weak euro they benefit the most foreign export companies and the countries from which the EU buys, ie countries such as the United States or China. On the contrary, the declining value of the euro is negative for consumers, ie buyers who use the currency for which they buy less and less.

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