The euro reaches parity with the US dollar

Euro reaches parity with US dollar

UPGRADE DAY

The euro fell to a dollar on Tuesday, a level not seen since the year it first came into circulation two decades ago, weighed down by the risk of a cut in supplies into gas for the European Union. 

Investors favored the greenback which has gained almost 14% since the start of the year and briefly traded at a dollar for one euro, a peak since December 2002, when questions about the brand new single currency weighed on its price.

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.

Power from Russia 'is at the heart of the turmoil in Europe' and Canada's announcement on Saturday that it would return turbines intended for the Nord Stream gas pipeline to Germany to ease the energy crisis with Russia “has no 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, an analyst at UBS, a halt in Russian gas deliveries to Europe “would cause a recession in the entire euro zone with three consecutive quarters of economic contraction”.

Safe havens sought

The European Central Bank (ECB) will therefore find it difficult to tighten its monetary policy to combat runaway inflation without worsening the economic situation.

The US Federal Reserve (Fed) has more leeway to Continue with rate hikes as Friday's jobs data showed the US economy is holding up better so far.

The euro's slide could continue.< /p>

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, this 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 was trading around 10:10 GMT for 1.002 4 dollar.

“Investors are struggling to cross the symbolic cap of parity” and bring down the euro below this level, estimates Walid Koudmani, analyst at XTB.

“This slow rhythm proves that it is a movement in the duration of sale of the euro and purchase of the dollar, and not a manipulation of the market”, adds Mr. Razaqzada.

The euro is also in trouble against the Swiss franc, also a safe haven: it fell to 0.983 6 Swiss francs, its lowest since 2015.

And the dollar also shines against other currencies considered as vulnerable to risk: the pound sterling plunged to $1.180, the lowest level since March 2020, when the start of the COVID-19 pandemic in Europe, in the midst of Brexit negotiations, had caused the currency to decline Britain at its lowest level since 1985.

Key dates for the euro

Here are the main dates for the course of the euro, which on Tuesday touched parity with the American dollar for the first time in nearly 20 years, carried away by tensions over energy in Europe and the strength of the greenback.

The euro, the official currency of 19 countries of the European Union and 340 million Europeans, has returned to its levels at the end of 2002, the year of its introduction.

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 unveiled with great fanfare in Brussels: it would take 1.955 83 German deutschemarks, 6.559 57 French francs or 1,936 .27 Italian lire for one euro.

The indicative rate against the greenback is 1.166 8 dollars, but after the first day of trading on January 4, it rises to 1.183 7 dollars.

2000: pullback below 1 dollar against US strength

The strength of the single currency does not last: as the United States economy booms, the euro slips below the $1 threshold in January 2000, and sinks to an all-time low of $0.8230 late October.

2002: entry into circulation, parity

The euro finally begins to be used by the inhabitants of eleven countries on 1 January. The economic outlook for the euro zone and the United States is converging, and the euro is evolving around parity, before crossing the one dollar mark for good at the end of the year, and never going back below this level before 2022.

2007-2008: financial crisis, record at $1.6 

The subprime mortgage crisis cut investors' appetite for the greenback, which saw its price plummet in 2007. While the American central bank (Fed) floods the market with liquidity to bail out Wall Street, the euro reaches a historic high in July 2008, at 1.603 8 dollars.

2010: debt crisis, the euro under 1, 2 dollar

From November 2008, however, 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 110 billion euros in aid. In June, the single currency faltered at 1.187 7 dollars.

In July 2012, the President of the European Central Bank (ECB) Mario Draghi declared that the institution was “ready to do whatever is necessary to preserve the euro”, allowing the currency to rise.

2014-2015: debt buyback by the ECB, the euro below 1.05 dollar 

But while Mario Draghi's program reassures investors about the future of the currency, the euro zone is struggling to return to robust growth and the ECB is maintaining an ultra-flexible policy.

While the economy European Union is struggling to recover and inflation remains low, the ECB welcomes without flinching the fall of the euro, which favors exporting companies. In 2014, the euro slipped below 1.2 dollars.

In 2015, a new round of monetary easing measures caused the euro to falter to $1.05 in March.

2016-2017: Brexit, Trump, Macron, the euro-dollar waltz 

In 2016, several political events worried the markets: the Brexit vote in June, a sign of the rise of anti-EU sentiment in Europe, then the election of Donald Trump to the White House , which pushes traders towards the dollar, a safe haven. The euro is then close to parity against the greenback, at 1.034 1 dollar in January 2017.

That year, the election of Emmanuel Macron as French President reassured the markets to some extent about the future of the euro zone. In February 2018, the single currency rose to 1.255 5 dollar.

2021-2022: Covid and Ukraine plunge the euro 

Initially, the pandemic of COVID-19 pushes the Fed and the US government to support the US economy at all costs, and drives down the dollar.

But the Fed begins in 2021 to signal that it intends to tighten its monetary policy. It begins to raise its rates in 2022, while in Europe, the war raging in Ukraine prevents the ECB from acting as quickly to counter inflation.

The euro-dollar pair flirts again with parity at the beginning of July, when Europe's lack of gas supply worries and on Tuesday, the euro reached the threshold of one dollar, a step back almost 20 years to the time when Europeans discovered for the first time the coins and banknotes of their common currency.