Currency under $ 1.20 How weak is the euro going to be?

Status: 06/18/2021 2:09 p.m.

In the USA there are signs of a turnaround in interest rates, in Europe the key interest rate will probably remain low for a long time to come. That has been burdening the euro for days. How much will the common currency still become cheaper? The prospect of rising interest rates in the US has recently weighed on the euro. The common currency fell in the past few days from rates at 1.22 to below 1.19 US dollars. Experts cited the interest rate meeting of the US Federal Reserve (Fed) as an explanation for this strong movement. After years of zero interest rate policy, the American monetary authorities had promised interest rate hikes, at least for the longer term. Accordingly, two rate hikes can be expected by 2023.

First of all, the Fed will in all probability cut back its security purchases later in the year, with which it had pushed down long-term interest rates on the bond market in recent years. The expectation of an economic recovery with rising inflation rates alone had pushed the yield on ten-year US government bonds up from around 0.5 percent to just under 1.8 percent since the summer of last year.

Long-term rates still negative

Yields on the German stock market have also risen sharply in recent months, albeit at a significantly lower level to date. The yield on ten-year Bunds is still around minus 0.2 percent. In the low, the interest rate was only around minus 0.67 percent. Despite rising inflation rates in Germany and the euro area, the European Central Bank in Frankfurt unwilling to be, to follow the central bank colleagues in Washington and to consider at least less security purchases in the near future. In May, the inflation rate in the euro zone was 2.0 percent, slightly above the central bank’s price stability target. In Germany they moved Producer prices even rose 7.2 percent in May compared to the previous year and therefore stronger than it has been for almost 13 years. The prices were driven by the sharply rising prices of so-called intermediate goods.

Bundesbank boss for the end of the bond purchases

“In the long run this will work noticeable in consumer prices The economists at Commerzbank said: “A central bank in crisis mode, which, as ECB President Christine Lagarde said in her last press conference, does not even talk about whether a reduction in bond purchases might be necessary. appears well behind the curve in comparison. “In the opinion of the experts, the monetary authorities have thus missed the entry into the exit from the zero interest rate policy.

An opinion that is also shared by the President of the Bundesbank, Jens Weidmann. Weidmann has spoken out in favor of an early end to the trillion dollar bond purchases by the European Central Bank (ECB) after the pandemic. The focus is on the purchase program called “PEPP” the monetary guardian. “When the emergency for which the PEPP was created is over, it must be ended,” Weidmann told the “Handelsblatt”. But whether Weidmann will prevail is unclear. There are thus signs for the near future that the dollar could retain or even expand its interest rate advantage.

German exporters benefit

For German vacationers who want to spend their free time outside the euro area, that would be bad news – they would have to pay more for foreign currency. The export-oriented German economy, on the other hand, is benefiting from the trend. Last year, just 36 percent of German exports went to the countries of the euro area. And even if you include EU countries with their own currencies such as Denmark, Sweden and the United Kingdom, which has since left the country, the share of exports last year was just over half.

A good sixth of exports even went directly to the USA. In fact, the impact of the dollar rate on German exports is likely to be significantly greater. Because some international currencies are directly linked to the US dollar. These include, for example, the Saudi riyal or the diram of the United Arab Emirates. Both Saudi Arabia and the Emirates are countries that traditionally buy and import many German products with the money they earn from oil exports.

Dollar weakness later in the year?

If the US dollar gains strength, German companies have two options. Either they reap additional profits with unchanged prices. Or they react with price cuts in order to gain market share – both attractive prospects for companies.

But at this point in time it seems questionable how long the euro will actually continue to decline. Because for autumn and winter, experts like those at Commerzbank are expecting inflationary dynamics to decline again in the USA. Then “the US dollar euphoria will soon be over”

Karin Senz, ARD studio Istanbul There’s a lot going on in the large square in front of Istanbul’s Bazaar district, but not nearly as much as before the pandemic: a few Arab tourists and locals stock up on their fasts or just sit in the sun. Ali stands at his little oil press and waits in vain for customers. He usually works seven days a week and gets around 3,000 lira, that’s a little more than 300 euros. With that he can just make ends meet. But now it’s lockdown on the weekend. “That’s why I only work five days a week and get 100 lira a day, which makes about 2000 lira a month,” says Ali. “That’s not enough to support my family. But what should I do? We have all got used to these circumstances.”

No protection from state social security

He does not get compensation from the state, which ordered the lockdown. “In Turkey it is very common that you do not work in small companies, for example in restaurants, small hotels or workshops,” says Istanbul economist Baris Soydan. An estimated 30 percent of workers are not registered – and thus without social and unemployment insurance, like Ali. The Turkish media reported that around 2.5 million permanent workers were sent on unpaid leave by their bosses. The state pays them around 1000 lira a month, a good 100 euros. Mücke is sitting a few doors down behind the counter in her little shop. It’s full of Turkish sweets – but not a single customer can be seen. “Before the pandemic, we had two shops, one more straight down the street,” she says. “We had to close it, the shutters are down. At the moment we’re trying to stay afloat with this shop.”

Terminations despite the ban

The 40-year-old could have applied for a rent subsidy, around 100 euros. But that wouldn’t matter with the high rent she has to pay here in the tourist district, she says. That is why she did not even apply for the grant: “We get state support for the insurance contributions of the employees. And there are reductions and deferrals for income tax. But that’s it.” Mücke has five employees. She has not cut their salaries, she says – although the working hours are significantly shorter from the early evening due to the weekend lockdown and curfews. “We were able to claim short-time work allowance for two months. It was said that it would be extended to June. But then they ended it. That is over.” Actually, the state has banned firing workers during the pandemic. According to the Turkish statistical office, around 250,000 people lost their jobs in February alone.

No rate cut

Turkey only went into a complete lockdown a year ago, which then lasted almost three months. Since then, the shops have remained largely open. Restaurants, cafes and bars are closed from time to time, as they are now during Ramadan. “Last year, in 2020, the economy in Turkey grew by 1.8 percent. In Germany, for example, it shrank,” says economic expert Soydan. “From a purely macroeconomic perspective, things went okay here, but not for the population.” Inflation is currently over 16 percent. That is also why many Turks looked to the decision of the new head of the central bank, Sahap Kavcioglou, on Thursday. The central bank did not comply with President Erdogan’s request to lower the key interest rate. Expert Soydan warns of another sticking point: the upcoming holiday season. “It could be that this year there are not many tourists from Germany or Russia,” he says. “If that were the case, significantly fewer foreign currencies – that is, euros and dollars – would enter Turkey.” And this is what the country needs – especially now in the pandemic. And the waiters, maids, bartenders, and entertainment staff need the jobs. At the moment, however, Turkey is struggling with record levels of around 60,000 new infections per day. Many people find it difficult to think of a successful holiday season.