What does it mean that the euro has fallen below parity with the dollar?

What does it mean that the euro has fallen below parity with the dollar?

Published August 23, 2022
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It’s a psychological barrier in the markets. But psychology is important, and the euro’s slide underlines the foreboding in the 19 European countries using the currency as they struggle with an energy crisis caused by Russia’s war in Ukraine.

A currency’s exchange rate can be a verdict on economic prospects, and Europe’s have been fading. Expectations that the economy would see a rebound after turning the corner from the COVID-19 pandemic have been replaced by recession predictions.

More than anything, high energy prices and record inflation are to blame. Europe is far more dependent on Russian oil and natural gas than the U.S. to keep industry humming and generate electricity. Fears that the war in Ukraine will lead to a loss of Russian oil on global markets have pushed oil prices higher. And Russia has been cutting back natural gas supplies to the European Union, which EU leaders described as retaliation for sanctions and weapons deliveries to Ukraine.

Energy prices have driven euro-area inflation to a record 8.9 percent in July, making everything from groceries to utility bills more expensive. They also have raised fears about governments needing to ration natural gas to industries like steel, glassmaking and agriculture if Russia further reduces or shuts off the gas taps completely.