The euro plunged Monday below parity with the dollar, the lowest in nearly 20 years, caught between a major energy crisis in Europe and an American central bank (Fed) still on the offensive to curb inflation.
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Around 6:15 p.m. GMT, the euro lost 1.05% to 0.9932 dollars, its lowest since December 2002. The single currency had already fallen below parity for the first time in mid-July.
The announced closure, for maintenance, of the Nord Stream 1 gas pipeline, which supplies the bulk of Russian gas to Europe, between August 31 and September 2, has further accentuated fears of shortages on the old continent, and boosted natural gas prices in Europe.
“This increases the risk of a significant economic slowdown by the end of the year” in the eurozone, said Shaun Osborne of Scotiabank.
“The evolution of energy prices and the question of supply are both very worrying, and that is what is behind this movement” downwards in the euro, according to Erik Nelson of Wells Fargo.
The United Kingdom is also caught in this crisis and the pound sterling did little better than the euro on Monday against the greenback. It flirted with its level of March 2020, in the early days of the pandemic, at 1.1760 dollars for one pound.
Prior to 2020, the British pound had not fallen below $1.18 since 1985.
Very dependent on Russian supplies, Hungary saw the forint fall to its lowest level in its history against the dollar, at 411 forints to the dollar.
“The sword of Damocles hanging over Europe is gone to stay there,” warns Kit Juckes, analyst at Societe Generale.
And the week threatens to be even more painful for the euro, because “poor PMI indicators on Tuesday could be enough to anchor the euro under one dollar”, he warns.
This development places the European Central Bank (ECB) in a “very difficult” situation, notes Erik Nelson. An increase in its key rate at its next meeting on September 8, expected at half a percentage point, “would support a little” the euro, “but with the risk of worsening the economic situation” of the zone.
And even by daring to raise another half point as the market predicts, after a similar rise in July, the ECB would not catch up on the Fed, which operators are now seeing rise for a third time in a row. rate of 0.75 percentage point in September.
The difference in pace is reflected in bond rates. The spread between the yield on US government bonds at 3 months and those of Germany, for the same maturity, was Monday at its highest for almost three years.
“People are expecting Fed Chairman (Jerome) Powell to adopt a speech perhaps a little more offensive than in July” during his address, scheduled for Friday at the annual meeting of bankers centers in Jackson Hole, Wyoming.
In addition to the continuation of the tightening, the person in charge could insist on “the probability that inflation remains high for a while (…) and that the rates remain high for some time too”, estimates Shaun Osborne.
After pricing in a possible Fed rate cut in the early months of 2023, the market is only pricing it in at the end of next year, helping to support the “greenback,” another nickname of the dollar.
Some analysts see the euro skid even more as the cold season arrives, notably Nomura, which evokes the single currency at 0.95 dollars by October, or even below.
But for Shaun Obsorne, “the dollar has already gone very high and we are not convinced that it will go much further in the medium term”.