The dollar soared on Thursday, reaching record highs against several currencies including the euro, which plunged back below parity, with the greenback taking advantage of the sharp rise in interest rates looming in the United States.
The dollar soared on Thursday, temporarily returning to parity against the euro and reaching record highs against other currencies, galvanized by the prospect of a tightened monetary policy in the United States to limit inflation.
Around 3:50 p.m. GMT (5:50 p.m. in Paris), the greenback took 0.25% to 1.0034 dollars for one euro after having fallen to 0.9952 dollars, a record since the end of 2002, when traders were still wondering about the future of the single currency put into circulation at the beginning of the year.
The euro rose during the session above parity, but traders remain pessimistic about the outlook for the currency, while a political crisis in Italy adds to fears about the economy of the euro zone.
Pessimism
This “complicates the task of the European Central Bank”, notes Jack Allen-Reynolds, analyst at Capital Economics.
And the dollar was reaching significant highs against other major currencies: the yen sank to 139.39 yen to the dollar, a level not seen since the 1998 economic crisis.
The British pound melted to $1.1760 to the pound, its lowest since 2020, at the start of the Covid-19 pandemic, and before that since 1985.
“The dollar is soaring as markets bet on higher Federal Reserve rate hikes,” said Fiona Cincotta, analyst at City Index.
The Fed seeks to counter inflation, which reached 9.1% over one year in June in the United States, a new record since November 1981.
And this rise in June was confirmed by the 11.3% jump in producer prices according to the PPI index published on Thursday.
Fed: towards a rise of one point?
Some investors are betting that the Fed could follow the Bank of Canada’s lead and raise rates by one point, a possibility raised by Fed Governor Christopher Waller on Thursday.
The action of the Canadian central bank was not enough to strengthen the Canadian dollar against the wave of the greenback: it melted by 0.94% to 1.3097 Canadian dollars for an American.
“In June, the Fed signaled that the July decision would be between 0.50 and 0.75 percentage points. The problem is that the Fed had indicated a 0.50 point hike in June and opted to the place for 0.75 points”, recalls Stephen Innes, analyst at SPI AM.
“There are few indicators between today and the Fed’s decision ‘expected on July 27’ that could change the market’s view,” added Ipek Ozkardeskaya, analyst at Swissquote.