Page 15 - economic report 2021

$/€ EXCHANGE RATES
Chart 1.6

Source: ECB.

On the one hand, the Fed began four consecutive hikes in the interest rates from March,
reaching the range of 2.25-2.50% in July. The Fed would like to reach “neutral monetary policy”
soon, doubling inflation without causing a recession. On the other hand, in March 2022, the
ECB ended the mass private and sovereign debt purchasing programme (for a total of €1.85
billion) approved during the pandemic. In addition, in June, the ECB finalised the debt purchasing
programme started during the 2008 financial crisis, and in July effected the first interest rate
rise in 11 years, of 0.50%.

The euro market price has fallen throughout In 2021 and the f rst half of 2022, the 13
2021, after the revaluation seen in the first euro depreciated against the dollar.
year of the pandemic. At the end of the year,
the euro was quoted at $1.13, which is 7%
less than in December 2020 ($1.217/€). The main reason for this depreciation in the European
currency is better economic prospects for the US economy, encouraging investors to seek the
higher yield from assets denominated in dollars. With the start of the Ukraine war at the end of
February 2022, the euro continued to weaken, as the war is expected to have a greater impact on
the Eurozone economy than the US economy. To this is added the higher interest rate hike in the
USA, which also encouraged investors to buy US public debt denominated in dollars.

Rising oil prices in 2021 were one of the
consequences of the strong economic recovery OIL PRICES - $ per barrel of Brent
seen around the world. The market price Chart 1.7
of oil gradually increased from $50 a barrel
in December 2020 to €74.2 in December
2021 (48% higher). As well as the effect of
the recovery in global demand, it should also
be noted that in 2021, OPEC decided to The external environment of the Andorran economy | I. The international economy
maintain moderate production levels in order
to gradually raise the price of oil and recover
part of the losses suffered during the first
year of the pandemic (oil prices fell 23% in
2020). Added to these circumstances was the
outbreak of war in Ukraine, which continued Source: Energy Informat on Administrat on, of the US Government.
to drive up oil prices even further, to reach
$113.34 per barrel on average in May, even over $120 on some days (the highest value since
before the 2008 economic crisis).