"Falling down"!The downturn in economic prospects and the US dollar hegemony has caused the euro and the British pound to suffer heavy losses

Under the dual pressure of strengthening the US dollar and the downturn in economic prospects, the British and euro exchange rates have opened the "falling down" model this year. The exchange rate of the euro to the US dollar fell below 1 to 1 in July, a new low in 20 years. The British exchange rate has fallen to 1 to 1.1410 recently, the lowest level since 1985.

Analysts believe that the weak economic prospects have lost their confidence in Europe, and the euro and the British pound have been under tremendous pressure. In addition, under the continuous appreciation of the US dollar, the currency system under the US dollar hegemony has also paid a heavy price in the currency of Europe and other countries.

Economic recession Yin Cloud shrouded in Europe

Many people believe that the economic situation in Europe is the culprit of currency depreciation. The soaring inflation and energy prices have caught the crisis of living costs in many European countries, and millions of low -income families are forced to make choices between heating and eating.

According to data on August 22, the National Bureau of Statistics of the United Kingdom showed that in July this year, the British Consumer Price Index (CPI) rose 10.1%year -on -year, a year -on -year increase of 40 years. Under the influence of high inflation, the Bank of England Bank of England has issued a warning that the British economy is expected to enter the longest and deepest decline since the financial crisis in 2008.

Jane Foley, chief currency strategist of the Dutch Cooperation Bank, said that many people are worried about the economic recession in the United States and Europe. He said: "Although the Bank of England has raised interest rates 6 times since last year, the pound itself is still weak, because the market is very concerned about British growth prospects."

The situation in the euro area is also worrying. Preliminary statistics released by the European Union Statistics on August 31 show that due to the situation of Ukraine, the energy and food prices of the euro zone continued to soar. The annual rate of inflation in August was 9.1%, which not only exceeded market expectations, but also hit a record high.

From the perspective of the country, the inflation rate in the August of major EU economies in Germany was 8.8%, France was 6.5%, Italy was 9.0%, and Spain was 10.3%.

The continuous rise of the core inflation rate in the euro zone highlights the spread of price pressure on a more extensive economic field. Economists predict that the inflation rate in the euro zone has not yet touched. With the rise of natural gas and electricity prices, the inflation rate in the euro area will rise further in the next few months, which may reach double digits.

In order to curb the further deterioration of inflation, the European Central Bank raised interest rates for the first time in more than ten years in July. However, due to a sharp interest rate hike, the risk of economic recession and the risk of debt crisis, the European Central Bank has a dilemma when formulating policies.

The report of the Oxford Economic Research Institute pointed out that with the increasing impact of high inflation, energy conservation measures, and financial environment on economic activities, the European economic growth momentum in the second half of 2022 is weakening. Relevant surveys show that in the next 12 months, the possibility of technical decline in the euro area will be close to 60%.

US dollar hegemony accelerate the depreciation of European currency

Many analysts also attribute the decline in the euro and the British pound to a sharp interest rate hike on the Fed. Because the US dollar is still the main currency of the world trade and central bank reserves, when the US dollar index hit a 20 -year high, it means that other major currencies are depreciating. Since the beginning of this year, the US dollar has risen 13%against the euro, 15%of the pound against the pound, and 20%of the yen.

In order to curb rampant inflation, the Bank of the United States began the most radical interest rate hike since the 1980s. This makes US dollar assets more attractive to global investors. This means that if the Fed ’s interest rate hike exceeds the European Central Bank and the British Bank, higher interest returns will attract investors to invest in investment from the euro and pound to US dollars. This has promoted the depreciation of the euro and the pound and the rise of the US dollar. At the same time, because the US economy looks stronger than Europe, this means that the Fed may continue to tighten policies and expand the gap between interest rates.

In addition, due to the low position of the US dollar, the US dollar also benefited from the position as an investor from an investor in an uncertain period. The price of high oil and natural gas is usually not good for imported countries such as Europe, but it is profitable to energy export countries such as the United States. This table is now a minority currency that keeps or defeat the US dollar exchange rate on the increase rate of the US dollar is often the currency of the energy producer.

Steve Englander, an analyst at Standard Chartered Bank, pointed out that a strong US dollar has made the global economic situation worse. Countries and companies outside the United States generally borrow money in the US dollar. Therefore, when the US dollar appreciates, the debt repayment of debt repayment from the local currency income becomes more expensive. For many emerging market economies, the increase in the cost of borrowing in the US dollar exceeds the export boosts obtained from currency depreciation.

"The US dollar is not even the gospel of developed countries. Exporters in Europe are being restrained by energy interruption, so they cannot make full use of favorable exchange rates," England said.

Analysts believe that the sharp rise in the US dollar has put tremendous pressure on European and British policy makers. Because the weak currency makes imported products more expensive, it may promote more inflation and allow central banks to follow the Fed to actively raise interest rates. The fragile economy is likely to pay a heavy price.

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