1 Euro is now less than 1 USD, for the first time in 20 years. How did Europe get here?

If you are someone who is always mentally converting euro rates into INR when in Europe, this was a good time to visit the continent. Well, except, the visa queues are so long that a European summer is pretty much impossible. Anyway. So the thing is, 1 euro fell to less than 1 USD last evening. That's the first time in 2 decades. How did this happen?

The last time euro fell below the USD, Saddam Hussein was still the President of Iraq, we had never heard of WhatsApp and Kim Jong-il was still the Supreme Leader of North Korea.

The euro tanked as much as 0.4% to a low of $0.9998 against the USD on Wednesday, its lowest level since December 2002. It was last down 0.1% on the day at $1.005 and has lost more than 10% so far this year, reported Reuters.

Why is the euro falling?

The Russia-Ukraine war, growing recession fears, massive surge in gas prices in Europe have hurt the single currency's value.

Rising concerns over Europe’s energy supply has also affected the euro.

Russia has threatened to further reduce gas flows to Germany and other European countries.

Why is the USD value rising?

Currencies tend to rise when the relevant central bank increases interest rates.The dollar has been strong in recent months after the US central bank raised interest rates and investors were seeking the safe haven of dollar assets in times of global tensions, reported BBC.

Why is it a big deal?

The euro is the second-most sought-after currency in the world after the USD and the daily turnover in the euro/USD is the highest among currencies. Since its launch in 1999, the only time the euro was below parity was between 1999 and 2002. It sank to a record low of $0.82 in October 2000.

What will be its impact?

Europe is already facing high inflation rates and a weaker Euro will mean that imports will get more expensive for eurozone countries. Goods such as crude oil which are priced in USD can get costlier for Europe.

For the European Central Bank it's a big problem because if they want to control the inflation rate they would have to introduce rate hikes which could add to the misery for an economy already facing a possible recession, reported Reuters.

If you are an Indian and are planning on visiting Europe, 1 euro= 80 INR.