Fears for Europe send the euro back under the dollar

European tourists on vacation in the United States will feel it passing. The euro was worth less than a dollar on Monday. The single currency hit 0.993 to the dollar, its lowest level since 2002, shortly after its creation. Once the symbolic threshold was crossed in the morning, the fall worsened in the afternoon, reaching 1% over the day.

Parity with the greenback had already been reached in mid-July. Since then, the euro had regained some color, up to 1.035 to the dollar. But this symbolic parity threshold is increasingly being tested by the markets. Since the start of the year, the euro has lost 12% against the dollar. Safe haven, the US currency is up about as much against a basket of six currencies. It continues to suck in capital as fears of a pause in Federal Reserve monetary tightening dissipate. Ahead of the central bankers’ meeting in Jackson Hole, US, at the end of the week, Fed leaders are sending strong signals about their intention to continue raising rates.

Conversely, fears of recession in Europe cast doubt on the ability of the European Central Bank to raise its own aggressively over time, despite persistent inflation. The peak of the price increase, which the Minister of the Economy Bruno Le Maire considered reached, in an interview with South West this weekend, could be delayed until 2023.

energy crisis

Across the Channel, inflation, already above 10% last month, could even peak above 18% in January, according to a Citi study. The British pound also fell to its lowest level against the dollar for five weeks.

The economic outlook is darkened by the energy crisis. The gas prices hit record highswhereas Moscow announced a further interruption of deliveries via the Nord Stream 1 gas pipeline at the end of the month, reviving fears of shortages. To make matters worse, the surge in the dollar increases the cost of oil imports. In six months, the rise in crude prices reached 66% in dollars, but 78% in euros. Fueled by fears of inflation, the fall in the euro is in turn contributing to fueling inflation, by increasing the prices of imported products. Small consolation, it makes products “made in” Europe more competitive.

Read alsoPlanned closure of Nord Stream: new record for European gas prices at closing

This trend should continue. “After briefly touching parity with the dollar in July, the euro should this time settle permanently below and oscillate until the end of the year between 0.95 and 1says Lee Hardman, foreign exchange specialist at MUFG bank. The fear of a recession in Europe will increase with the approach of winter due to the energy crisis and does not seem to dissipate any time soon. Conversely, the dollar should continue to be stimulated by the Fed’s continued monetary tightening. » Less affected than Europe by the war in Ukraine, the US central bank has more leeway to fight inflation.

SEE ALSO – Brazil: the Minister of the Economy considers France “insignificant”