The euro was worth less than the dollar this morning after the US reported record inflation. At around 10:00 AM (Brazilian time), the single European currency was trading at $0.998. Lowest level since 2002.
The drop came after the US Department of Labor announced that inflation rose 1.3% in June, to collect 9.1% in 12 months. This is the biggest advance in 40 years, since November 1981.
This figure reinforces expectations that the US central bank will continue to raise interest rates. Since the country’s economy is considered the safest in the world, higher interest rates make US assets more attractive, which values the currency.
Financial markets expect the interest rate to rise by another 0.75 percentage points at this month’s Monetary Council meeting, which takes place between 26 and 27.
In a statement, the President of the United States said: Joe BidenInflation figures for June were “unacceptably high,” he said, but were also outdated due to the recent drop in gasoline prices.
“Energy alone accounted for nearly half of the monthly rise in inflation. Today’s data does not reflect the full impact of nearly 30 days of lower gas prices, which have cut the pump price by about 40 cents (on the dollar) since mid-2019. June,” he said.
Why is the euro declining?
In addition to inflation in the United States, the war in Ukraine also contributed to the fall of the European currency.
Investors fear a disruption to Russian gas supplies, which could cause a recession on the continent. The raw materials arrive via a pipeline that is currently undergoing maintenance.
Russia’s Gazprom group began repairs at Nord Stream 1 yesterday, and is waiting for European countries to see if Moscow will restore supplies after the works, which are expected to last 10 days.
For Mark Heffel, an analyst at UBS, a suspension of Russian gas supplies in Europe “would trigger a recession across the eurozone with three consecutive quarters of contraction in the economy”. In addition to the gas issue, rising import prices, especially energy, are driving up inflation on the continent.
*with Reuters information
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