The financial exchange market is in a bit of a quagmire as the exchange rate between the Euro and the United States dollar peaked at the same spot on Tuesday for the first time in 20 years.
As of Tuesday morning Greek time, one euro was measuring equal to exactly one dollar, which meant that the value of the euro has been dropped down by over 12 percent compared to its value at the beginning of the year. This means that the euro is at its weakest against the dollar since winter of 2002, twenty years ago.
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While the news comes off as being positive for Americans who have been conducting business and traveling in Europe, it is a worrying sign for the health of the global economy.
The euro has been significantly weakened by Europe’s energy crisis due to the conflict in Ukraine. Russia supplied nearly 40 percent of Europe’s gas before the war with Ukraine, and the bloc has since attempted to reduce dependence on fuel from the country. Euro and dollar equal in value after fuel crisis, inflation
This has come in the form of sanctions and partial bans against Russian gas and fuel in the EU, as well as attempts to source fuel from other countries.
In retaliation, Russia has cut back supplies of fuel to European countries that depend on it. The Nord Stream pipeline, which links Russia to Germany, was shut down on Monday for ten days.
While Russia claims that it was shut down for annual repairs, the EU fears that the pipeline, which is essential in bringing fuel to Europe, may be closed forever. Before it was shut down, Russia reduced its gas supplies to the EU by way of the pipeline by around 60 percent.
“The most proximate concern for markets is whether or not Nord Stream 1 is going to come back online…the markets will likely price in a recession” if the pipeline remains closed said financial expert Bipan Rai to Reuters.
In addition to the fuel crisis, inflation has also contributed to the euro’s drop in value. The European Central Bank (ECB) has stated that it will increase interest rates in the bloc for the first time since 2011.
Currently, inflation in Europe has reached 8.6 percent.
