But how far can the euro tumble against the dollar?

At this level, it is no longer a depreciation, but a dive. The euro fell Tuesday to its lowest level since 2002 against the dollar, the currency of the Twenty-Seven being worth less than 1.02 dollars, close to parity (one euro = one dollar). Before the health crisis, it was worth $1.10. Since the beginning of 2022, it has lost 7% of its value. And the fall seems set to last. The Nomura bank even imagines today the euro falling below parity (0.98 dollar) in August, then to 0.95 dollar a month later.

“There is no limit during a depreciation, no glass ceiling: the euro can continue to fall for a long time. He is even well on his way to “, worries Marc Touati, economist and president of the cabinet In command of the economy and finance. Worse still, according to Jacques Le Cacheux, professor of macroeconomics at the University of Pau: “The euro is now in a spiral of depreciation. The more he falls, the more he feeds his future fall. Its lowest level ever reached is 0.88 dollar, at the start of the common currency, recalls Henri Sterdyniak, specialist in globalization at the French Observatory of Economic Conditions (OFCE). Can it fall even lower?

A cyclical downturn

The European currency is currently collapsing for several reasons, and none of them seem to be able to be settled easily. “The Fed, the American central bank, raised its interest rates well before and much more than the ECB, the European central bank. It is therefore more profitable to invest your money in the dollar than the euro because it yields more, which increases the value of the first on the second”. However, if the ECB decides to increase its rates, the Fed risks doing the same, knowing that it already has a head start, warns Henri Sterdyniak: “The Fed is much more aggressive than the ECB, it will know how to react and maintain its lead.

The same ECB which is more angry with Joachim Nagel, the director of the Federal Bank of Germany. “The latter openly criticizes the softness of the central bank, as well as its leniency on the public debts of southern European countries”, informs Marc Touati. Bad atmosphere, therefore, when the first economy of the Twenty-Seven criticizes its own central bank, which does not invite to bet on Europe: “There is the idea that it does not move forward united and could implode at any time, which has reason to worry the markets,” notes the economist.

Jump and catch up

Jacques Le Cacheux goes on to another cause: the war in Ukraine. First, in such a period of international crisis, “the dollar is historically the safe haven. Admittedly, the euro is depreciating, but it is also the dollar which is appreciating. Its value increases against all world currencies,” says the professor. Second, the conflict between Moscow and kyiv risks continuing to affect the European economy, which is already not considered the best investment for this winter. “The disaster scenario is if Russia cuts off gas and oil to Europeans, plunging the 27 into a recession, and causing the euro to fall to unprecedented levels”, worries Henri Sterdyniak.

Let’s recap: the war in Ukraine is not about to end, the Fed is more offensive than the ECB, Europe is not speaking with one voice… The record of 0.88 dollar could well fall. And so ? “When the currency is weak, exports sell better but imports cost more. However, Europe imports a lot, which only increases inflation and reduces purchasing power,” says Marc Touati.

There remains, however, one hope – a sizeable one – to stop the infernal fall: that the markets, so hesitant when it comes to investing in the euro, decides to save it. Because if the currency collapses beyond 0.88 dollar, “it could be a major electroshock. The good value of the euro is estimated at 1.15 dollars, so we would be very, very far from it. Investments could resume in the euro to save it, and regulate the global economy”. And it is well known, what matters is not the fall, but the landing.