The delay of the geopolitical crisis in Europe is still a large risk of the euro decline

Xinhua News Agency, Frankfurt, July 21 (International Observation) The delay of the geopolitical crisis in Europe foreshadows the risk of the euro decline

Xinhua News Agency reporter Shao Li

Promoted by factors such as the European Central Bank's upcoming interest rate hikes for more than ten years, the euro has recently recovered the exchange rate of the US dollar. However, experts believe that the energy crisis brought about by geopolitical conflicts, as well as multiple factors such as the restrictions on the policy space of the European Central Bank against high inflation, the bleak growth prospects of the euro zone, and the unstable national political situation of heavy debt, and the unstable national political situation is likely to further suppress the euro.

After the euro exchange rate of the US dollar reached a year of about 1 to 1.15 this year, with the upgrading of the Ukraine crisis and the US interest rate hikes, it fell to the level on July 12. An important psychological barrier, constantly refreshing new lows in the past 20 years.

Institutional investors generally believe that the development process of the European geographical crisis and the differences in monetary policy of the European and American central banks are the two key factors to determine the trend of the euro exchange rate.

The Federal Reserve has raised interest rates three times this year, and institutional investors generally expect that the central bank will raise interest rates at least 75 basis points at the end of July. Not only that, since June, the Fed has begun to reduce the balance sheet, that is, to reduce the US dollar bonds purchased before.

In contrast, the European Central Bank has just prepared to start the interest rate hike process, and the shrinkage has not been put on the agenda. Moreover, in order to prevent the financing cost of heavy bonds during the interest rate hike, the European Central Bank plans to introduce new debt purchase tools.

Marbrook Shenna, chief investment strategist of French Foreign Trade Bank Investment Management Corporation, said that the gap between the European Central Bank and the Federal Reserve's interest rate hike will bring further downward pressure on the euro.

In fact, from 2016 to 2018, the United States and Europe had obviously departed from monetary policy: at that time, the United States entered the interest rate hike cycle and began to reduce the balance sheet, while the European Central Bank continued to buy interest rates and continued to purchase net assets. But during this period, the euro exchange rate to the US dollar even had a long rising market.

Analysts believe that, given that the geopolitical conflict that has caused the soaring energy prices in Europe is still continuously fermenting, it is difficult for the euro to fundamentally recover the trend. Casten Bugski, an economist at the Netherlands International Group, said that the euro weakness and disadvantages of euro were greater than benefits in the case of geopolitical tension in the region.

Many investment banks said that the weak euro will further exacerbate the rise in European energy prices and the pressure of input inflation. Even if natural gas is disconnected from important European countries, energy prices that remain high will cause the euro zone economy to fall into decline.

Since June 20, the Dutch ownership transfer centers (TTF) natural gas futures main contract prices that have been regarded as the base price of natural gas in Europe have been operating at a high level of 6 to 9 times in the same period last year.

In addition, the ruling alliance of the Euras area heavy bonds in Italy is facing crisis, which has also exacerbated investors' concerns about the prospects of the euro exchange rate. Edgar Walker, chief economist of Michael Bank of Germany, was worried that the government could "greatly turbulent" the government's bond market for the euro zone government.

At the end of February 2002, with the full exit of the currency of the country's national currency in the euro zone, the euro became the only legal currency. Since then, the euro has opened a strong appreciation cycle against the US dollar. Before the outbreak of the international financial crisis in 2008, the exchange rate of the euro to the US dollar reached a historical high of about 1 to 1.60.

Recently, the negative overflowing effects of strong US dollar and US tightening monetary policy have affected Europe, which has suffered a lot of pressure on the economy of the euro and euro zone.

[Editor in charge: Liu Xiaodong]

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