How long will the euro fall?

Last week, the exchange rate of the euro's US dollar fell below the parity, which made the market surprised. Since the beginning of this year, the decline in the euro has exceeded 10%of the US dollar. The European Central Bank's upcoming monetary policy conference and the evolution of European energy dilemma are expected to become a key factor affecting the recent euro trend. At the same time, from a longer -term perspective, the European economy has slowed down, and the market's concerns about the decline of the European economy have become increasing.

In view of the current high inflation in the euro zone, if the European Central Bank adopts more radical interest rate hikes in order to suppress inflation, it will further increase the concerns of economic recession, so as to provide strong support for the euro. Especially when the Fed maintains the "eagle" attitude, the strong rise of the US dollar will also apply downward pressure on the euro. At present, the euro has rebounded slightly from the parity level.

Some analysts pointed out that if the European Central Bank Monetary Policy Conference and the economic data of the euro zone can meet market expectations this week, the euro exchange rate to the US dollar is expected to rise. Analysis of the Bank of China Research Institute pointed out that the European Central Bank has gradually canceled the purchase of debts and launched the interest rate hike process, which will support the euro exchange rate. However, the Russian -Ukraine conflict is uncertain, and the economic recovery of member states within the euro zone may bring certain disturbances.

Judging from the current situation, the economic growth prospects of the euro zone are full of challenges, and this has also weakened the support of the economy to face the euro. The euro zone ZEW's economic prosperity index in July was -51.1, a new low since December 2011, and the previous value was -28. The European Commission predicted in the 2022 summer economic outlook report released by the European Commission that the inflation rate of the euro zone in 2022 was 7.6%, and the GDP of the euro zone in 2022 will increase by 2.6%, lower than the previous expectations of 2.7%, and the economic growth expectations in 2023 will be expected to be expected to be in 2023 Devolonia from 2.3%to 1.4%. The sluggish economic data is harming the market's confidence in the euro.

It is worth noting that in addition to reflecting the risks of the economic fundamentals of the euro zone, the depreciation of the euro has also exacerbated the pressure brought by the rising inflation of the European energy supply crisis to a certain extent. The European Central Bank's interest rate hike in July is already on the board, but the final interest rate hike will be, and the market is still guessing. The euro zone blended consumer price index (HICP) in June increased by 8.6%year -on -year, almost 8.1%in May, hitting a record high, and this has also become a reason for supporting the European Central Bank to start rapid interest rate hikes in July. Although the 25 -basis point of interest rate hikes is still a high probability event, the possibility of 50 basis points has not been completely ruled out.

In addition, the current dilemma of "disconnection" facing Europe has also become an important factor in suppressing the euro exchange rate. In fact, the trend of continued decline in the euro has become more and more obvious after the maintenance of the "Beixi 1" natural gas pipeline. Therefore, whether the "Beixi No. 1" natural gas pipeline can be restarted, it has attracted much attention. Some opinions believe that if Russia's natural gas confession continues, the euro will fall to the US dollar to a low level of 0.90. And this also means that before the energy crisis of the euro area has not effectively eased, the euro may be difficult to get rid of the weak trend.

In fact, this time the euro to the US dollar to a parity has become a iconic event in the global exchange market. The last time the euro fell below the US dollar, it dates back to November 2002. This means that the euro has fallen to the level 20 years ago, and the impression of the euro is more expensive than the US dollar.

At the same time, the sharp decline of the euro against the US dollar and the weak euro trend have caused a wave of sturdy markets in the market. As short euro has become a popular option in recent foreign exchange transactions. Morgan Stanley said that if you look at the euro completely, it is recommended to short the euro to the US dollar with a goal of 0.97. Morgan Stanley pointed out that due to the rise in natural gas prices, weak economic growth data, and high inflation, the prospects of the euro zone are facing increasing challenges. European countries may not be able to reserve sufficient natural gas a few months ago in winter. This risk seems to be rising, which may reduce the market's expectations for the economic growth of the future euro zone.

In addition to the above factors, the trend of the US dollar and related political risks are also important factor affecting the performance of the euro. With the "Broken 9" of the Consumer Price Index (CPI) in the United States in June, the market's expectations for the Fed will increase interest rate hikes have gradually heated up. Once the Federal Reserve has made a decision beyond market expectations at the end of July's monetary policy conference, or it will further promote the upward US dollar, the euro will also face greater depreciation pressure on the US dollar. Although the European Central Bank has released a clear interest rate hike signal, due to the overall financial cycle of the euro zone and the normalization of monetary policy, it is still lagging behind the United States. Therefore, it is difficult for the euro to obtain strong support. In addition, after the news of Italian Prime Minister Dragett's resignation from President last week, the euro fell back to the US dollar again under the parity. The turbulence of Italian politics may make the European Central Bank's interest rate hikes facing more complicated situations, thereby further adding uncertainty faced by the prospect of euro trend.

In summary, the performance of the euro in the near future will still be disturbed by multiple factors, and the downward pressure is expected to increase.The attraction of the euro to investors is facing the risk of decline.According to data released by the International Monetary Fund (IMF), in the first quarter of this year, the US dollar accounted for 58.8%of the global foreign exchange reserves, which was the same as the fourth quarter of 2021.But the proportion of the euro decreased from 20.6%in the previous quarter to 20%.The European Central Bank has stated that creating a digital euro can make payment or savings easier, thereby increasing the international status of the euro.However, the European Central Bank also emphasized that digital euro may increase the attraction of the euro, but the health and scale of the euro zone economy are more important.Source: Financial Times Reporter: Liu Yanchunzi

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