The Euro Is Having a Worse War Than Its Peers |
The European Central Bank can be forgiven for feeling nauseous as a massive global deleveraging of risk since the Iran war started has hit the euro area’s currency and interest-rate markets particularly hard. While haven flows into the dollar have boosted the greenback across the board, the euro has weakened by more than any other major currency, and by twice as much as sterling. The futures market has shifted from seeing no monetary policy actions this year to anticipating a tightening as early as July. Policymakers will need to tread particularly carefully.
Just a few short weeks ago, the common currency breached the $1.20 level that sets alarm bells ringing in Frankfurt; this week, it’s fallen precipitously toward $1.15 in the kind of sudden lurch that makes central bankers nervous. Europe is dangerously exposed to rising energy prices as oil hovers around $100 a barrel; memories of soaring costs that propelled consumer prices upwards in 2022 after Russia’s invasion of Ukraine are still fresh enough to sting.