The euro has slid more than 12 per cent against the dollar this year, Photograph: Daniel Roland/AFP/Getty ImagesEuro area businesses spent years wishing for a weaker euro. Now it’s here and it couldn’t have come at a worse time.
Whatever positives come from the currency’s depreciation — export competitiveness, exchange rate effect on foreign earnings — are being overshadowed by the energy crisis and the threat of a recession. Europe is particularly exposed because of its dependence on imports from Russia. Gas supplies have already been reduced, and further cuts would heap even more strain on the region’s economies, particularly Germany.
Economic worries are also feeding the exchange-rate moves as traders bet they will limit the European Central Bank’s ability to tighten monetary policy, leading it to fall further behind the aggressive hiking pace of the Federal Reserve. The widening interest-rate differential is benefiting the dollar, and the current trend is as much a story of greenback strength.
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Euro zone business activity contracted again in AugustS&P Global's flash Composite Purchasing Managers' Index - seen as a good guide to overall economic health - fell to 49.2 in August from 49.9 in July, just above the median forecast in a Reuters poll for a bigger drop to 49.
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