Around 10:20 p.m., the single currency remained down 0.44%, at 1.0014 dollars for one euro, but above parity. Earlier, the European currency fell to $0.9952.
The dollar slowed its advance against the euro on Thursday, after pushing it above parity earlier, reacting to statements by members of the American central bank (Fed) who were less bold than projections by the currency traders.
Around 8:20 p.m. GMT, the single currency remained down 0.44%, at 1.0014 dollars for one euro, but above parity. Earlier, the common currency of 19 European countries fell to $0.9952 for the first time in nearly 20 years.
For DailyFX’s Christopher Vecchio, the market reacted to statements by two members of the Federal Reserve, Governor Christopher Waller and St. Louis branch chairman James Bullard, who both came out in favor of a rate hike. 0.75 percentage point of the policy rate at the next meeting on July 26 and 27.
“They have insisted publicly, in recent months, to take precedence over inflation” and raise rates, recalled the analyst. “So the fact that they are both suggesting that 0.75 points is appropriate gives the market reason to reconsider the idea that a one point rise is in the pipeline.”
On Wednesday, after the publication of a US price index much higher than expected, traders had indeed recalibrated their expectations, to rely massively on a rise of one percentage point, unheard of in the modern era. .
But after the exits of the two central bankers, currency traders no longer assessed the probability of such a scenario at 41%, against 80% the day before.
However, the euro is not out of the woods, especially since the single currency suffered another blow on Thursday with the resignation of Italian Prime Minister Mario Draghi.
The Italian president refused this resignation, but the political crisis threatens a country considered to be one of the fragile links in the euro zone.
The yield on Italian 10-year government bonds was catapulted by this development, up to 3.40%, more than 2 points above its German equivalent, which serves as a benchmark for the euro zone.
In the event of new elections, “we can expect a populist government, which would not bode well for budgetary discipline” in Italy, commented in a note, Carl Weinberg, of High Frequency Economics.
“It’s a bit of a nightmare scenario for the European Central Bank (ECB),” added Christopher Vecchio.
“This could rekindle fears of a fiscal crisis in Italy”, he said, “which would make the ECB’s task even more difficult to avoid fragmentation”, i.e. the increase in interest rate spreads between euro area countries.