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Why the Euro Has Tumbled to Parity Against the Dollar

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How the Dollar's Strength Impacts Credit Markets
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As the US economy went into meltdown during the 2008 global financial crisis, one euro was worth about 1.6 times the US dollar. Now a combination of Europe’s front-line exposure to Russia’s war in Ukraine and the European Central Bank’s tardiness in raising interest rates have driven it to parity, or a 1:1 ratio with the dollar. It’s the first time the euro has sunk to that level since 2002, in the early years of the currency’s existence. 

Europe suffers most from the war, which has sparked an energy crisis and could lead to potentially a long and deep recession. That places the ECB in a difficult position -- trying to curb inflation and cushion a slowing economy -- as it aims to raise borrowing costs for the first time since 2011. At the same time, the US Federal Reserve is raising interest rates much faster than the 19-nation euro area. That makes yields on US Treasury bonds higher than those on Europe’s debt, driving investors to the dollar and away from the euro. What’s more, the greenback benefits from its status as a haven, meaning that as the war drags on and the fallout gets worse, the euro keeps sliding.