The tightening of Russian action in the Ukraine war and the Fed’s interest rate decision are affecting the euro. During the night, the common currency fell to its lowest level in 20 years.
The euro temporarily fell to a 20-year low against the US dollar on Thursday. During the night, the common currency fell to $0.9809, its lowest level since late 2002. In the late afternoon, the euro traded just above that at $0.9816. The European Central Bank set the reference rate at 0.9884 (Wednesday: 0.9906) dollars. The dollar thus cost 1.0117 (1.0095) euros.
Like many other currencies, the euro was recently weighed down by the strong dollar. On the one hand, the US currency is benefiting from the tight monetary policy of the US Federal Reserve, which raised its key interest rate sharply by 0.75 percentage points for the third time in a row on Wednesday evening. The background is the very high inflation. On the other hand, the dollar is in demand because of the increasingly gloomy geopolitical situation. The partial mobilization of Russia had already driven investors into the safe haven dollar the day before. The euro had previously traded close to par with the dollar.
“Since most of the energy supplies from Russia have already come to a standstill, the direct effects of the renewed escalation are likely to remain minor for the time being,” commented expert Esther Reichelt from Commerzbank. “However, the exchange rate reactions have shown that the risks arising from the Ukraine war are by no means fully priced in.” Europe is significantly more dependent on Russian energy than the US.
The yen, meanwhile, has appreciated following FX market intervention. The Japanese government is thus bracing itself against the extremely weak national currency. The yen has long been weighed down by the Japanese central bank’s monetary policy, which, unlike many other central banks, does not brace against inflation. On Thursday, this policy was confirmed after the central bank’s interest rate meeting. The yen appreciated against the dollar and euro following the intervention.
The Turkish central bank has lowered its key interest rate again despite high inflation. In view of the very loose monetary policy, it has been under pressure for a long time. It is currently weaker than ever against the dollar. The dollar peaked at a record high of 18.40 lira. Inflation in Turkey was a good 80 percent in August. This was the highest level in 24 years. According to economic doctrine, significant interest rate increases would actually be the order of the day, but the Turkish President is putting pressure on the central bank and repeatedly calling for interest rate cuts.
For other important currencies, the ECB set the reference rates for one euro at 0.87256 (0.87335) British pounds, 139.18 (142.66) Japanese yen and 0.9684 (0.9549) Swiss francs. A troy ounce of gold was trading at $1,673 in London this afternoon. That was about a dollar less than the day before.