The euro is going through one of its darkest periods since its creation. This Thursday, the single European currency reached a historic low against the dollar, trading at just $1.025. What is really going on behind the scenes to explain this decline? Delving into the heart of the economic and political reasons behind this collapse.
Economic prospects at half mast for Europe
The European economy is faltering. Between gloomy growth forecasts and persistent political instability, the Old Continent is struggling to reassure investors. The great European powers, such as Germany and France, are grappling with structural challenges that are hampering their dynamism.
At the same time, fears of a return to trade tensions between the United States and Europe weigh heavily. With Donald Trump about to return to the White House, threats of new customs duties are increasing, which does not bode well for already weakened European exports.
The dollar boosted by a more aggressive monetary policy
In contrast, the dollar shines brightly. The American Federal Reserve (Fed) maintains a more restrictive monetary policy than that of the European Central Bank (ECB), which reinforces the attractiveness of the greenback. Investors see the U.S. economy as fertile ground, even in the face of political uncertainty.
The Fed plans to limit rate hikes to two this year, a move seen as measured by markets. On the other hand, the ECB seems to be playing the aggressive card in an attempt to stimulate moribund growth, a contrast which further fuels the weakness of the euro.
And the other currencies in all this?
If the euro is in bad shape, it is not the only one to suffer. The pound sterling also fell against the dollar, hitting its lowest level since last April. The Japanese yen, on the other hand, is holding up better thanks to a more optimistic monetary policy from the Bank of Japan.
However, it is the euro which concentrates the attention of currency traders, as its collapse seems symptomatic of a profound imbalance between the economic and political forces on both sides of the Atlantic.
Can we hope for a rebound?
At this stage, a rebound in the euro seems unlikely. European economic fundamentals do not work in its favor, and geopolitical tensions exacerbate uncertainties. For investors, caution remains in order, because each sign of improvement could come up against an unforgiving economic reality.
The collapse of the euro is not just a story of numbers. It reflects a deeper unease, that of a Europe in search of dynamism in the face of an America which continues to impose itself. Share this article, because an unbalanced global economy affects everyone.
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