The euro strengthened strongly against the US dollar. The reason is falling inflation in the USA.
The sharp drop in inflation in the USA has caused the euro to rise sharply. One euro cost more than 1.11 dollars on Wednesday. That was the highest it had been in a year.
Inflation figures from the US are fueling expectations that interest rate hikes will end earlier there than in the euro zone.
The strong euro helps against inflation in Europe and Germany – and everyone who goes on vacation in the dollar area in the summer.
The euro rose sharply on Wednesday, hitting its highest level in about a year. The unexpectedly sharp drop in inflation in the US weighed on the US dollar. With the lower inflation comes the expectation that the phase of rising interest rates in the USA is coming to an end. In the euro zone, interest rates are likely to rise for longer in response to more persistent inflation here. This boosted Europe’s common currency, rising above $1.11.
On Wednesday afternoon, the euro climbed to $ 1.1120, its highest level since March 2022. In the morning, the euro was traded more than half a cent lower.
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The US inflation rate fell to 3.0 percent in June from 4.0 percent a month earlier. Core inflation, which excludes energy and food prices that are susceptible to fluctuations, also unexpectedly fell significantly and fell below five percent.
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The US Federal Reserve is targeting an inflation rate of two percent. In June, the Fed left interest rates unchanged for the first time after ten interest rate hikes in a row. However, Fed Chair Jerome Powell has expressly kept open further interest rate hikes. The central bank will monitor further data for this. The Fed next decides on interest rates on July 26th. In the United States, they are currently in a range of 5.0 to 5.25 percent and thus higher than at any time since 2008.
Ulrich Wortberg, analyst at the Landesbank Hessen-Thüringen, still considers an increase in the key interest rate range in the USA by 0.25 percentage points at the end of July to be almost certain. However, expectations of a further increase thereafter could be dampened.
On July 27, the European Central Bank (ECB) will again decide on the key interest rates in the euro area, one day after the Fed. After its latest interest rate hike in June, ECB President Christine Lagarde said it was very likely that the ECB would hike interest rates again. In view of the weak economy in Europe, however, voices are increasing calling for an end to interest rate hikes.
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Economists trust the euro to soar up to 1.30 dollars – these are the reasons and the consequences for your money
A stronger euro helps the ECB in the fight against inflation because it makes imports from the dollar area cheaper. That helps Germany in particular. On the one hand, Germany imports a lot of energy, which is settled in dollars on the world markets. On the other hand, the USA is Germany’s most important trading partner outside of Europe.
Vacationers from Germany who want to spend their holidays in the USA or regions that have their currency closely linked to the dollar will also benefit from a stronger euro. Since the low in the summer of 2022, the euro has gained a good 17 percent.
The weakness of the US dollar also slowed the fall of the Russian ruble. The ruble has stabilized at around $90 against the US dollar over the past few days. Russian officials had described a range of 80 to 90 rubles per dollar as “comfortable”.
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With material from dpa.
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Declining Russian ruble: The real reasons are the sanctions and the weakness of the Russian economy