Euro Hits Two-Year Low Against Dollar Amid Economic Stagnation and Energy Crisis
The euro has fallen to a two-year low against the US dollar, reaching a exchange rate of 1.03, as the region grapples with economic stagnation and an energy crisis. The decline comes as the European economy continues to struggle with the aftermath of the Russian gas embargo and the ongoing energy crisis.
The euro fell by 0.4% against the dollar on Thursday, reaching a mid-day reference rate of 1.032 in Europe. Since November 2022, the euro has not been this low against the dollar, when the EU imposed an embargo on Russian fossil fuels and many member states prepared for a potential gas shortage in the winter.
Germany, once the industrial powerhouse of Europe, is still reeling from the effects of the embargo. The country’s economy shrank in 2023 and 2024, and the central bank is forecasting a meager 0.2% growth for this year. Germany has been struggling with rising energy costs since it was cut off from Russian oil and gas, with major manufacturers like Volkswagen and Bosch announcing large-scale cuts for the year.
Political instability has also exacerbated the euro’s problems, as the governments of Germany and France collapsed at the end of last year, and the entire EU is preparing for the potential of US President-designate Donald Trump’s tariffs.
The European Central Bank has cut interest rates four times in the past year, and it is expected to announce further cuts by 2025.
According to Bloomberg, a combination of these factors has led analysts to predict that the euro could drop to parity with the dollar this year. The euro last traded below parity with the dollar in 2022, when the Ukraine conflict escalated and fears of an energy crisis were high.
The decline comes just a day after the UK reported the strongest decline in manufacturing production in 11 months, and less than two weeks after a new government forecast a zero percent growth for the final quarter of 2024.