The euro has again weakened considerably against the dollar this week. Shortly after the outbreak of the war in Ukraine, the European currency also weakened, but then recovered. Now the Euro is once again heading downwards. What is the cause of this?
The euro/dollar exchange rate fell through the $1,10 mark at the beginning of this week, making it almost equal to the level of early March, when the war had just started. This weakened the euro, while the Swiss franc and the dollar actually strengthened. These currencies are often seen as a safe haven in turbulent times.
Fed more energetic
The ongoing war in Ukraine is putting pressure on the value of the euro. The American Central Bank (Fed) is more proactive in raising interest rates than the European Central Bank (ECB). The Fed raised interest rates by 0,25 percentage points in March. Initially, an interest rate increase of 0,5 percentage points was planned, but the central bank was slightly more cautious due to the war. However, it is expected that the Fed will continue to raise interest rates in the coming months. The Fed has indicated that it will reduce its balance sheet by $95 billion, which means a significant tightening of monetary policy. This gives the dollar support.
European interest rate hike not yet expected
The ECB may also soon raise interest rates to curb rapidly rising inflation. In the Netherlands, inflation for March amounted to almost 10%, which is excessively high. In other Member States there is also monetary devaluation. Another interest rate decision is on the agenda for next Thursday (April 14). If the ECB actually comes up with an interest rate increase next week, it would be surprising. During the previous meeting in March, it was announced that the purchase program will be stopped in July and that only then will the interest rate increase begin. Economists only expect the euro to strengthen if there is an actual interest rate increase.