The euro briefly touched exact parity with the dollar on Tuesday, a level not seen since the year of its introduction, as the single currency faces risks of a cut in Russian gas supplies to the European Union.
But investors seemed reluctant to significantly cross this symbolic milestone and the euro stabilized against the dollar at $1.0050 around 14:30 GMT, up 0.10%.
A respite that should not last: several analysts expect the euro to fall below the dollar’s ceiling, something not seen since December 2002, when questions about the new single currency weighed on its course.
The market is concerned about a major energy crisis in the Old Continent, doubting the restoration of gas flows by Russia after an interruption due to maintenance of the Nord Stream 1 gas pipeline. This situation accentuates fears of a recession in Europe.
Russia’s energy “is at the center of the turmoil in Europe” and Canada’s announcement on Saturday that it would return turbines destined for the Nord Stream pipeline to Germany to ease the energy crisis with Russia “does not have a positive impact,” he says. Jeffrey. Halley, analyst at Oanda.
Listen to Olivier Bourque, economic journalist at the microphone of Alexandre Moranville on QUB radio:
On Monday, Russian energy giant Gazprom began ten days of maintenance on the Nord Stream 1 pipeline. Germany and other European countries are waiting to see if gas supplies are restored.
“The key question is whether the gas will return after July 21. The markets seem to have already made up their minds,” says Mr. Halley.
For Mark Haefele, an analyst at UBS, a suspension of Russian gas deliveries to Europe “would cause a recession throughout the euro zone with three consecutive quarters of economic contraction.”
Therefore, the European Central Bank (ECB) will find it difficult to tighten its monetary policy to fight rampant inflation without worsening the economic situation.
The US Federal Reserve (Fed) has more room to continue with its rate hikes as jobs figures released on Friday showed that the US economy is holding up better so far.
Safe havens sought
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 the Fed will have to move even faster to raise rates, said Fawad Razaqzada, an analyst at Forex.com.
“Investors are struggling to cross the symbolic parity threshold” and to push the euro below this level, said XTB analyst Walid Koudmani.
“This slow pace shows that this is a long-term movement of selling euros and buying dollars, and not market manipulation,” adds Mr. Razaqzada.
The euro is also in trouble against the Swiss franc, also a safe haven: it fell to 0.9836 Swiss francs, its lowest level since 2015.
The dollar also shines against other currencies considered vulnerable to risk: the pound sterling plummeted to 1,180.7 dollars, a level reached the most since March 2020, when the start of the COVID-19 pandemic in Europe, in full negotiations of Brexit, had pushed the British currency to its lowest level since 1985.
These are the main dates of the evolution of the euro, which on Tuesday touched parity with the US dollar for the first time in almost 20 years, dragged down by energy tensions in Europe and the strength of the greenback.
The euro, the official currency of 19 countries of the European Union and of 340 million Europeans, returns to the levels of the end of 2002, the year it was put into circulation.
1999: Launched at $1.17
On December 31, 1998, on the eve of the launch of the euro, provided for by the Maastricht Treaty, the final conversion rates were announced in Brussels with great fanfare: 1,955 83 German marks, 6,559 57 French francs or 1,936 27 Italian lira for one euro.
The indicative exchange rate against the dollar is $1.1668, but after the first trading day on January 4 it rises to $1.1837.
2000: Pullback below $1 vs. US strength.
The strength of the single currency does not last: while the US economy grows, the euro falls below the $1 threshold in January 2000 and sinks to an all-time low of $0.8230 in late October.
2002: entry into circulation, parity
The euro finally begins to be used by the inhabitants of eleven countries on January 1. The economic outlook for the eurozone and the United States is converging, with the euro hovering around parity, before finally crossing the one-dollar mark at the end of the year, never to return below this level before 2022. .
2007-2008: financial crisis, record at $1.6
The subprime crisis reduced investors’ appetite for the dollar, whose price plummeted in 2007. As the US central bank (Fed) flooded the market with liquidity to bail out Wall Street, the euro reached an all-time high in July 2008, at $1.6038.
2010: debt crisis, the euro below 1.2 dollars
However, starting in November 2008, the euro zone entered a period of recession, and in 2010, the European debt crisis began.
In May, the euro zone and the IMF came to the rescue of Greece with an aid of 110,000 million euros. In June, the single currency tumbled to $1.1877.
In July 2012, the president of the European Central Bank (ECB), Mario Draghi, stated that the institution was “ready to do whatever is necessary to preserve the euro”, allowing the currency to rise.
2014-2015: debt repurchase by the ECB, the euro below 1.05 dollars
But while Mario Draghi’s program reassures investors about the currency’s future, the euro zone is struggling to return to solid growth and the ECB remains ultra-loose.
While the European economy struggles to reactivate and inflation remains low, the ECB unblinkingly welcomes the fall of the euro, which favors exporting companies. In 2014, the euro fell below $1.2.
In 2015, a new round of monetary easing measures caused the euro to fall to $1.05 in March.
2016-2017: Brexit, Trump, Macron, the eurodollar waltz
In 2016, several political events worried markets: the Brexit vote in June, a sign of rising anti-EU sentiment in Europe, and then the election of Donald Trump to the White House, which propelled traders higher. the dollar, safe haven. The euro is then close to parity against the dollar, at $1.034 in January 2017.
That year, the election of Emmanuel Macron as president of France somewhat reassured markets about the future of the euro zone. In February 2018, the single currency rose to $1,255 again.
2021-2022: Covid and Ukraine sink the euro
First, the COVID-19 pandemic pushes the Fed and the US government to support the US economy at all costs and pushes the dollar lower.
But the Fed begins in 2021 to show signs that it intends to tighten its monetary policy. It begins to raise its rates in 2022, while in Europe, the bitter war in Ukraine prevents the ECB from acting as quickly to counter inflation.
The euro-dollar pair flirts with parity again at the beginning of July, when there are concerns about the lack of gas supply in Europe and on Tuesday the euro touches the threshold of the dollar, a step backwards of almost 20 years, at the moment in which Europeans first discovered the coins and bills of their common currency.
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