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Friday, February 23, 2024

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Euro Hits 20-Year Low Against The Dollar

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The EUR fell to its lowest level since 2002 against the Dollar amid fears of an impending recession in the Euro-Zone. The currency fell as low as $1.0281, threatening to bring it closer to parity with the dollar.

The stability that is often put forward to justify the fixed parity between the euro and the CFAF now seems to be shattering. The European currency no longer seems able to protect itself against the U.S. dollar, and is dragging the CEMAC and WAEMU currencies into its turmoil.

On Tuesday 5 July, the euro, the common currency of 19 European countries, fell by 1.5% against the US dollar, reaching its lowest level in nearly 20 years, according to Agence Ecofin. The reasons for this new decline are unclear, as it is not always easy to explain sudden market movements over a short period.

The constant analysis seems to indicate that economic agents fear that the Eurozone is in recession. However, one constant fact that can be noted is that inflation reached 8.6% at the end of June, mainly driven by energy prices, whose global bills are mainly paid in US dollars. This generalized increase in prices on the world market benefits the American currency, which is in great demand and is increasing in value.

The current situation has prompted the European Central Bank (ECB) to consider raising rates for the first time in 11 years at its meeting on Thursday, July 21. Investors are unhappy with ECB President Christine Lagarde’s announcement of a 0.25% hike, and thus favor the more profitable dollar.

No central bank or finance ministry in the two sub-regions anticipated such a scenario. The gains and losses will have to be carefully analyzed, as all countries are already preparing for the 2023 budgets.

For countries that export raw materials such as oil, gold, gas, cocoa and cotton, there is a real opportunity to increase their export revenues.

Also, for countries in the WAEMU zone whose central bank (BCEAO) has recovered foreign exchange reserves and invested them mainly in US dollar assets, this is also a good opportunity to generate capital gains. But both subregions are also importers of goods and services, and the inflation-ridden euro zone is a key partner.

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