The euro’s exchange rate against the dollar is at its lowest point this year, and a possible rise in oil prices threatens to weaken the currency even more.
Common currency the euro has weakened recently so that the value of the currency threatens to approach parity, i.e. an equal exchange rate in relation to the US dollar.
The euro’s exchange rate is at its lowest point this year, close to $1.05. During the third quarter of the year, the euro has weakened by three percent against the US dollar.
On Wednesday afternoon, the course was trading at $1.0527. The course had strengthened by 0.6 percent from Tuesday’s closing price.
News agency According to Reuters, the weakening of the euro is largely explained by the stable dollar and the vitality of the US economy.
However, the rise in oil prices in particular threatens to further weaken the euro area economy and the euro, Reuters writes. The euro is particularly susceptible to reacting to oil price fluctuations, as net imports account for more than 90 percent of the oil products available in the EU.
“The high price of oil is weighing on the exchange rate of the euro area, and if the price of oil rises to 100-110 dollars per barrel, we believe that it will be difficult for the euro to avoid parity,” said Nomura Bank’s currency strategist Jordan Rochester for Reuters.
According to Reuters, the price of crude oil has risen by nearly 30 percent during the last quarter. Oil has become more expensive since the major oil-producing countries Saudi Arabia and Russia announced in September that they would limit oil production.
According to Reuters, Barclays bank, for example, expects the price of oil to rise to 100 dollars per barrel in the coming months. On Wednesday, the price of the Brent reference quality was around 89 dollars per barrel and the price of the WTI reference quality was around 87 dollars.
At Nomura Bank the euro is expected to weaken to $1.02 by the end of the year. The Morgan Stanley bank, on the other hand, estimates that the euro would weaken to $1.03. Morgan Stanley’s forecast is based on geopolitical risks that will harm the euro area and weaken the euro more than the United States, Reuters reports.
The weakening of the euro is good for export companies in the euro area, because their relative competitiveness in international trade improves. At the same time, the weakening of the currency can hit consumers’ wallets, because the prices of goods imported from outside the euro area become more expensive.
In July 2022, the euro fell below one US dollar for the first time in two decades. The last time the euro and the dollar were very close to so-called parity was in 2017. In the years 2000–2002, i.e. 20 years ago, the euro was weaker than the dollar for almost two years.
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