At Bloomberg via the Washington Post Marcus Ashworth takes note of the declining value of the euro:
The euro’s weakness is fast becoming a problem for the European Central Bank as its decline drives it below parity to the dollar. While that threshold may just be a number, it is undeniably more than symbolic: Its breach will affect confidence in the euro zone and, for once, is driven as much by concern about Europe’s economic outlook as it is by investors seeking the haven of the greenback. The central bank needs to respond with a bigger-than-planned rate increase later this month.
The currency’s drop ought to persuade the ECB to raise official borrowing costs faster than it is currently anticipating, narrowing the interest-rate differential to other major global currencies. The Federal Reserve has raised rates by 150 basis points this year and is poised for much more tightening; more than 50 countries have raised official rates this year by at least 50 basis points. The ECB has yet to act, with its official deposit rate still negative, making it very late to the tightening party — what could turn out to have been a serious policy mistake. The euro is weaker this month versus all of the world’s major currencies.
Yesterday the euro reached parity with the dollar for the first time in 20 years. It is expected to decline farther in value.
As I’ve mentioned before, I was working in Germany when Germany’s currency was still the Deutsche Mark and adopting the euro as the common currency of the European Union was a hot topic. It was conceived of then and always has been as an attack vehicle against the dollar. It now has a greater opportunity to serve that function than at any time in the recent past. We’ll see how that works out.
The falling euro has yet a ways to go. In the first instance, this is the result of the decision to go to renewables and to shut down fossil fuels and nuclear power. That is a policy of de-industrialization and immiseration for the European peoples. Those outcomes are inevitable as long as the EU/UK adhere to the Paris Accords. The economic collapse is being accelerated by the Russo-Ukrainian war and the US imposed sanctions regime.
The ECB is toying with the idea of raising interest rates to shore up the euro. But the EU economy was struggling with negative interest rates. Raising rates would have pushed the pre-war EU economy over the edge. Doing it now, in a economy that is in recession would further accelerate the collapse.
There is no way out of this mess. The EU is going down, and it will drag the US down with it.
It is not the Euro that is weak; but the dollar that is strong.
Besides the Euro, look at a chart of the dollar vs yen, Korean won, Taiwan dollar, Indian Rupee, etc.
In some sense; a strong dollar is good (imagine where inflation would be if the dollar had stayed level with the Euro; oil and other commodities prices 20% higher) — but it is creating the conditions for a storm in a few months.
It’s all tied together, the strong dollar is linked with the petrodollar system, which is why Biden has to make nice with the Saudis, and prevent sales of oil to China to be done in Yuan.