Economic and political instability has battered the Eurozone currency
The euro has fallen to its weakest level against the US dollar in more than two years, reaching EUR/USD 1.03. The slump comes amid Germany’s continued economic stagnation and an EU-wide energy crunch.
The euro dropped by 0.4% against the greenback on Thursday morning, reaching 1.032 by midday in Europe. The European currency has not traded this low against the dollar since November 2022, when most of the EU was gearing up for winter gas shortages after the bloc embargoed Russian fossil fuels.
More than two years later, the German economy is still reeling from the effects of this embargo. Germany’s economy shrank in 2023 and 2024, while the country’s central bank forecasts meager growth of 0.2% this year. Once Europe’s industrial powerhouse, Germany has struggled with soaring energy costs since cutting itself off from Russian oil and gas, and its leading manufacturers – such as Volkswagen and Bosch – all announced cutbacks in 2024.
Political instability has also exacerbated the euro’s woes, with the governments of Germany and France collapsing late last year, and the entire EU bracing for US President-elect Donald Trump’s promised tariffs.
The European Central Bank cut interest rates four times last year, and is expected to announce further cuts in 2025.
According to Bloomberg, this combination of factors has led analysts to believe that the euro could slide to parity with the dollar this year. The euro last traded below parity with the dollar in early 2022, shortly after the Ukraine conflict escalated.
The slump came a day after Britain printed its sharpest drop in manufacturing output in 11 months, and less than two weeks after a new government estimate put growth at 0% for the final quarter of 2024.
