The latest slide comes after another heated set of US inflation data.
The latest slide comes after another heated set of US inflation data.
The euro fell below parity against the dollar for the first time in nearly two decades on Wednesday, as a hawkish US Federal Reserve and growing concern about the risks of a looming recession in the euro area continued to affect the currency.
The latest slide comes after another heated set of US inflation data.
Europe’s single currency started this year on a strong note as economic recovery eased after the pandemic. but Russia’s invasion of UkraineThe rise in European gas prices and fears that Moscow may cut supplies further, have heightened fears of a recession and hurt the euro.
Meanwhile, rising global uncertainty and an aggressive Fed monetary policy stance have benefited the safe-haven dollar.
The euro fell 0.4% to a low of $0.9998 at 1245 GMT, its lowest level since December 2002. It was down 0.1% that day at $1.005 and is down more than 10% so far this year.
“Gas rationing, stagflation, an expected recession, all these are good reasons for a slowdown on the euro,” said Stuart Cole, chief macro economist at Equity Capital in London, before the euro crossed that threshold.
He said these factors would make it difficult for the European Central Bank to raise interest rates, further widening the interest rate gap with the United States.
Since becoming freely available in 1999, the single currency has spent little time out of parity. In fact, the last time it did so was between 1999 and 2002, when it fell to a record low of $0.82 in October 2000.
Within its relatively short two-decade history, the euro is the second most sought-after currency in global foreign exchange reserves and the daily turnover in euro/dollar is the highest among currencies in the global $6.6 trillion-per-day market.
Euro fall is a headache for the ECB. Allowing the currency to fall only fuels the record-high inflation that the ECB is battling to control. But trying to shore it up with higher interest rates could increase the risk of a recession.
The ECB has so far underestimated the issue, arguing that it has no exchange rate target, even if currency matters. Also on a trade-weighted basis – against the currencies of its trading partners – the euro is down just 3.6% this year.