The euro reaches parity with the dollar, a first since 2002

The euro fell to one dollar on Tuesday, a level that had not been reached since the year of its introduction two decades ago. The single currency is notably weighed down by the risk of a cut in Russian gas supplies for the European Union (EU).

Investors favored the greenback, which has gained almost 14% since the start of the year and briefly traded at a dollar for a euro, a high since December 2002, when questions about the brand new single currency weighed on his courses. The market is worried about a major energy crisis on the Old Continent, doubting Russia’s restoration of gas flows after an interruption for maintenance on the Nord Stream 1 gas pipeline. This situation accentuates fears of recession in Europe.

Energy from Russia ‘is at the heart of the turmoil in Europe’ and Canada’s announcement on Saturday that it would return turbines destined for the Nord Stream gas pipeline to Germany to ease the energy crisis with Russia ‘is without a positive impact,” comments Jeffrey Halley, analyst at Oanda. On Monday, Russian energy giant Gazprom began ten days of maintenance on the Nord Stream 1 gas pipeline. Germany and other European countries are waiting to see if gas delivery will be restored.

‘The key question is whether the gas will come back after July 21. The markets seem to have already made up their minds’, notes Mr. Halley. For Mark Haefele, analyst at UBS, a stoppage of Russian gas deliveries to Europe “would cause a recession in the whole euro zone with three consecutive quarters of economic contraction”.

The European Central Bank (ECB) will therefore find it difficult to tighten its monetary policy to fight galloping inflation without worsening the economic situation. The US Federal Reserve (Fed) has more leeway to continue its rate hikes, as employment figures released on Friday showed that the US economy is holding up better so far.

Safe havens sought

The euro’s slide could continue. On Wednesday, inflation data from France, Germany and the United States could fuel investor concerns about a divergence of economies on both sides of the Atlantic.

‘If US inflation is stronger than the market expects, it could benefit the dollar’, investors are betting that the Fed will have to act even faster to raise rates, said Fawad Razaqzada, analyst at Forex.com. The euro rose very slightly after hitting a dollar, and traded around 10:10 GMT for 1.0024 dollars.

‘Investors are struggling to cross the symbolic threshold of parity’ and to bring the euro down below this level, said Walid Koudmani, an analyst at XTB. “This slow pace proves that this is a long-term movement of selling the euro and buying the dollar, and not a manipulation of the market,” adds Mr. Razaqzada.

The euro is also struggling against the Swiss franc, also a safe haven: it fell to 0.9836 Swiss francs, its lowest since 2015. And the dollar also shines against other currencies considered vulnerable to risk: the pound sterling plunged to $1.1807, the lowest level since March 2020, when the start of the Covid-19 pandemic in Europe, in the midst of Brexit negotiations, had pushed the British currency back to its lowest level since 1985.

/ATS

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