'1 Euro = 1 Dollar' for the First Time in 20 Years... Dollar Surges Amid Recession Fears

Ukraine Crisis Intensifies Dollar Asset Flight Amid European Energy Shortage

Euro coins and US dollar bills [Image source=AP Yonhap News]

[Asia Economy Reporter Lee Chun-hee] Parity (1 euro = 1 dollar), where the value of the euro and the dollar are equal, has occurred.

According to Bloomberg News, at around 6 a.m. local time on the 12th, the euro-dollar exchange rate reached 1 dollar per euro. This happened as the euro's value dropped by about 12% compared to the beginning of the year, marking the first time in 20 years since 2002 that the euro and dollar values have been equal.

The euro was introduced on January 1, 1999. However, in the early stages, existing national currencies such as the German mark and French franc were still used alongside it. The official circulation of the euro began on January 1, 2002. Considering that the parity at that time was due to technical factors related to the introduction of the new currency, the fact that the euro's value has become equal to the dollar for economic reasons can be seen as an unprecedented event.

This situation began as Russia invaded Ukraine, causing the euro's value as a safe asset to decline. Recently, Russia cut off the Nord Stream 1, a major gas pipeline supplying gas to Europe, citing regular maintenance, which led to a rapid shift toward dollar assets. This energy crisis and high inflation resulting from it are accelerating the decline in the euro's value.

Although Russia's gas pipeline shutdown is officially for maintenance, which occurs annually, given the escalating conflict between Western countries and Russia following the Ukraine situation, there are concerns that the pipeline may not resume operation. Jordan Rochester, a foreign exchange strategist at Nomura Securities, has predicted that if Russia completely shuts down the Nord Stream 1 pipeline, the euro's value could fall to as low as 0.95 dollars per euro.

Valdis Dombrovskis, the European Union (EU) Executive Vice President, said at a press conference ahead of the Eurozone finance ministers' meeting the day before, "The complete cutoff of Russia's gas supply is a risk that cannot be ruled out." He added, "On the 14th, the EU Commission will release new economic indicators and is expected to revise upward the inflation forecast." This indicates measures reflecting the risk of reduced gas supply from Russia.

Earlier, the EU Commission announced in May that it expected the Eurozone inflation rate to reach 6.1% this year. If inflation intensifies, the European Central Bank (ECB) is expected to implement high-intensity tightening, raising concerns about an increased risk of economic recession.

This content was produced with the assistance of AI translation services.