Euro on brink of parity with dollar as recession fears mount

Source: news.sky.com : 2022-07-12 09:40:00 :

The US dollar and European single currency came within a whisker of parity for the first time since 2002 on Tuesday morning, as financial markets fret over the likelihood of a global recession ahead.

The euro fell officially as low as $1.00001, according to Refinitiv data, before clawing back some ground after the scare.

There had been market talk that parity had technically been achieved, though that was later discounted by updated figures.

Analysts say it is only a matter of time though as the dollar, a place of refuge for investors globally in uncertain economic times, squares up to a euro battered by the tough inflation backdrop caused by the end of the pandemic and war in Ukraine.

The US central bank has taken aggressive action on inflation, with interest rate hikes also traditionally supporting a currency’s strength.

Its counterpart in Frankfurt is yet to raise rates, having only just completed its pandemic-related support for growth.

The European Central Bank even has a negative main interest rate to encourage lending but has signalled it will raise rates this month as the single currency area squares up to soaring inflation and the prospect of a mighty energy crunch ahead of the winter.

The biggest market fear is that Russia will switch off the gas taps to manufacturing powerhouse Germany, which supplies other EU nations, after annual maintenance on the Nord Stream 1 pipeline.

Sarah Hewin, senior economist at Standard Chartered, said: “There doesn’t seem to be a lot of support for euro at this point.

“It does not just relate to gas prices but to what seems to be a split within the ECB over how far they raise rates.”

The market has been led to expect a 0.25 percentage point rise this month followed by a 0.50 increase in September but there is pressure for more urgency from within the governing council and among economists.

Neil Wilson, chief markets analyst at markets.com, was more scathing in his verdict of the ECB’s position.

He said of the euro’s pressure: “At some point the bears are just going to drive this right through the parity level and be done with it.

“When does the ECB act – fragmentation risks or not, the ECB is fiddling while the currency burns, causing worse inflation and more misery for the population.

“Time for an emergency inter-meeting hike to show they are serious – the market just doesn’t believe in the ECB any more. Inflation above 8% and interest rates remain negative… it’s madness.”

Read the original article on Here!

Leave a Reply

Your email address will not be published. Required fields are marked *