The euro rallied on Tuesday after falling to a 20-year low and effectively reaching parity against the US dollar as investors fear an energy crisis in the region could push the economy into recession.
The single currency hit $1.00005 against the dollar, the lowest level since December 2002, after data showed German investor confidence fell below levels at the start of the coronavirus pandemic in July due to to energy concerns, supply bottlenecks and rate hikes from the European Central Bank.
“For all intents and purposes, it did indeed hit parity,” said Mazen Issa, senior strategist at TD Securities FX In New York.
“It looks like it’s a very gloomy outlook for the euro…. a subpar paradigm is very much on the cards,” Issa said, adding that the single currency could fall to the $0.85-$0.90 area against the dollar.
The dollar is benefiting from expectations that the Federal Reserve has more room to raise rates than its peers, which face more challenging growth prospects.
Concerns that Europe could slip into a recession have grown since the largest single pipeline carrying Russian gas to Germany, the Nord Stream 1 pipeline, began annual maintenance on Monday. Governments, markets and businesses are concerned that the closure could be extended due to the war in Ukraine. read full story
The single currency last traded at $1.0050, after bouncing from the $1 level, which some analysts attributed to technicals related to options activity and short hedging.
Neil Jones, head of forex sales at Mizuho, said markets had been “shorting” the euro in anticipation of a break below parity, but “we didn’t get it and now these shorts are buying the market again.” Early New York.”
A possible catalyst that could push the euro back lower could be Wednesday’s highly anticipated inflation data, which is expected to show US consumer prices rising at an annual rate of 8.8% in June.
“We may have to wait for the US CPI or a clearer picture for European energy markets once the planned maintenance on Nord Stream is nearing completion for the euro-dollar to break the (parity) threshold,” he said. Simon Harvey, director of FX. at Monex Europe.
Meanwhile, the Australian dollar recovered from a two-year low, after being hit by global growth concerns as China implements new COVID-19 restrictions. read full story
The Australian dollar was last up 0.22% at $0.6752, after earlier falling as low as $0.6712, the lowest level since June 2020.
The US dollar fell 0.55% against the Japanese yen to 137.33, after hitting 137.73 on Monday, the strongest level in 24 years.
[Con información de Reuters]
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