Euro nears 5-year lows as Russia-Ukraine conflict continues

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Euro nears 5-year lows as Russia-Ukraine conflict continues

The photo taken on December 30, 2021 shows the Euro sculpture in Frankfurt, Germany. On January 1, 2002, eurobanknotes and coins were physically introduced into eurozone countries. The euro has been weak against the US dollar, approaching its lowest level in five years due to the crisis in Ukraine and the sluggish economic growth in Europe.

The euro dropped to as low as $1.0455 at the close of trading on Friday, its lowest level since May 2017 when one euro was worth $1.0338, according to the currency exchange site xe.com.

On March 31, one euro was worth $1.1162 a year ago, the figure was $1.2141, more than 16 percent higher than Friday's close.

Lee Hardman, a currency economist with the MUFG Bank in London, said the euro is within reach of five-year lows and it seems increasingly likely that it will break through that barrier and approach dollar-euro parity.

The parity between the two currencies is unusual. Since 2002, currency markets have not valued the US dollar as much as or more than the euro.

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Viraj Patel, a foreign exchange and macro strategist with London's Vanda Research, told Xinhua that psychological barriers can be significant when it comes to currency markets. The difference between 1.001 US dollar per euro and 0.999 dollars per euro is small from a pure economic standpoint. The 20 euro banknotes are seen in Brussels, Belgium on December 30, 2021. ZHENG HUANSONG XINHUA Hardman, Patel and other analysts attribute the weakness of the euro to the conflict between Russia and Ukraine, which is impacting Europe more than other parts of the world. It is a major drag on countries' post-pandemic economic recovery because of the conflict.

Economists believe that there will be a growing risk of a recession in Europe later this year. After strong positive growth in 2021, some European economies reported negative growth in the first quarter of this year.

Hardman said that a near-term recovery for the euro was unlikely, especially if the Russia-Ukraine conflict continues, but he said he thought that over a two to three-year period the euro would probably remain stronger than the dollar.

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There is a greater difference between the impacts of the conflict on the United States and Europe, he said. The conflict has been a bigger shock to Europe and currency markets are pricing that into their calculations. The photo taken on January 1, 2022 shows the headquarters of the European Central Bank illuminated to celebrate the 20th anniversary of euro banknotes and coins in Frankfurt, Germany. LU YANG XINHUA According to Patel, the weaker currency would erode the European Union's normal positive trade balance by making exports less valuable and increasing the price of imported goods sold in dollars or other currencies, causing inflation and reducing consumer confidence. The rising energy prices are a factor in the calculations.

According to the European Union data released last week, that happened in February. In February, the countries that use the euro had a trade deficit of 7.60 billion euro $7.95 billion, compared to a surplus of 23.50 billion euros a year earlier.

In 19 of the 27 member states of the European Union, the euro is used.