The euro briefly touched exact parity with the dollar on Tuesday, a level not seen since the year of its inception as the single currency suffers from risks of a cut in Russian gas supplies to the European Union.
But investors seemed hesitant to significantly surpass that symbolic milestone, and the euro stabilized at $1.0050 around 14:30 GMT against the greenback, up 0.10%.
A respite that was not to last: several analysts expect the euro to fall below the dollar ceiling, not seen since December 2002, when questions about the brand-new common currency weighed on its shares.
The market is concerned about a major energy crisis in the old continent and doubts about Russia’s restoration of gas flows after a halt for maintenance work on the Nord Stream 1 gas pipeline. This situation is increasing recession fears in Europe.
Energy from Russia “is at the heart of the turmoil in Europe” and Canada’s announcement on Saturday that it would return turbines for the Nord Stream gas pipeline to Germany in a bid to defuse the energy crisis with Russia “is without positive implications,” comments Jeffrey Halley, analyst at Oanda.
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On Monday, Russian energy giant Gazprom began ten-day maintenance work on the Nord Stream 1 gas pipeline. Germany and other European countries are waiting to see if gas supplies will resume.
“The key question is whether the gas will come back after July 21. The markets already seem to have made up their minds,” Halley notes.
For Mark Haefele, an analyst at UBS, a halt to Russian gas supplies to Europe would “cause a recession across the eurozone with three consecutive quarters of economic contraction.”
The European Central Bank (ECB) will therefore find it difficult to tighten monetary policy to combat runaway inflation without worsening the economy.
The US Federal Reserve (Fed) has more leeway to continue raising interest rates as payrolls data released on Friday showed 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 divergence between economies on either side of the Atlantic.
“If US inflation is stronger than the market expects, it could benefit the dollar,” said Forex.com analyst Fawad Razaqzada, investors are betting the Fed will have to act even faster to hike rates.
“Investors are struggling to break the symbolic parity threshold” and take the euro below that level, said Walid Koudmani, an analyst at XTB.
“This slow pace proves that this is a long-term move of selling the euro and buying the dollar and not market manipulation,” adds Mr. Razaqzada.
The euro is also struggling against the Swiss franc, also a safe haven, falling to 0.9836 Swiss francs, its lowest level since 2015.
The dollar is also shining against other currencies seen as risk-prone: the pound sterling plummeted to $1,180.7, a level it has seen since March 2020, when the start of the COVID-19 pandemic in Europe pushed Brits into full Brexit -Negotiations had pushed currency back to its lowest level since 1985.
Here are the key data for the euro, which touched parity with the US dollar on Tuesday for the first time in almost 20 years, swept up by energy tensions in Europe and the strength of the dollar.
The euro, the official currency of 19 European Union countries and 340 million Europeans, is back to where it was at the end of 2002, the year of its introduction.
1999: Starts at $1.17
On 31 December 1998, on the eve of the introduction of the euro as provided for in 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 lire for one euro.
The target rate against the greenback is $1.1668, but after the first day of trading on Jan. 4, it rises to $1.1837.
2000: Drops below $1 against US strength
The strength of the single currency does not last: while the US economy is booming, the euro slipped below the $1 mark in January 2000 and fell to an all-time low of $0.8230 in late October.
2002: Placing on the market, parity
On January 1st, the euro will finally be used by the residents of eleven countries. The economic prospects for the Eurozone and the United States are converging and the Euro is trending around parity before finally breaking above the one dollar mark at the end of the year and never falling below that level again before 2022.
2007-2008: Financial crisis, record at $1.6
The subprime mortgage crisis dampened investor appetite for the greenback, which plummeted in 2007. As the US Federal Reserve (Fed) flooded the market with liquidity to bail out Wall Street, the euro hit an all-time high in July 2008, at $1.6038.
2010: Debt crisis, the euro below 1.2 dollars
From November 2008, however, the euro zone entered a recession phase and in 2010 the European debt crisis began.
In May, the euro zone and the IMF came to Greece with 110 billion euros in aid. In June, the single currency collapsed at $1.1877.
In July 2012, European Central Bank (ECB) President Mario Draghi declared that the institution was “ready to do whatever it takes to preserve the euro”, thereby allowing the currency to appreciate.
2014-2015: ECB debt buyback, euro below $1.05
But while Mario Draghi’s program reassures investors about the currency’s future, the eurozone is struggling to return to robust growth and the ECB is maintaining extremely flexible policies.
As the European economy struggles to revive and inflation remains low, the ECB has unflinchingly welcomed the fall of the euro, which favors exporters. In 2014, the euro slipped below 1.2 dollars.
In 2015, a new round of monetary easing pushed the euro down 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 rising anti-EU sentiment in Europe, then the election of Donald Trump to the White House, which drove traders higher. The euro is then close to parity against the greenback at 1.034 1 dollar in January 2017.
This year, the election of Emmanuel Macron as French President gave some reassurance to markets about the future of the eurozone. In February 2018, the single currency rose again to $1.255.
2021-2022: Covid and Ukraine crash the euro
First, the COVID-19 pandemic is urging the Fed and US government to support the US economy at all costs, pushing the dollar lower.
But the Fed is starting to signal in 2021 that it intends to tighten monetary policy. It will start raising interest rates in 2022, while in Europe the raging war in Ukraine prevents the ECB from tackling inflation as quickly.
The euro-dollar pair is flirting with parity again in early July as Europe’s lack of gas supplies worries and the euro touches the one-dollar threshold on Tuesday, a step back nearly 20 years when Europeans first spotted the coins and banknotes of their common currency.