Euro hits US dollar parity for first time in 20 years. As a result of the euro’s parity with the US dollar and investors’ apprehension over potential future central bank tightening as well as concerns over the global economy, stock markets plummeted.
The euro hit a low of $1 before 10:00 GMT on Tuesday, its lowest level in more than 20 years.
The US dollar has surged to two-decade highs against a variety of currencies in recent weeks, strengthening its position as the go-to currency for investors concerned about the economic prospects.
Euro hits US dollar parity for first time in 20 years. Given the impact of the ongoing natural gas price surge on the local economy and the conflict in Ukraine, the euro has been particularly vulnerable. When it comes to hiking interest rates, the European Central Bank has lagged behind competitors.
The Nord Stream 1, the largest pipeline bringing Russian gas to Germany, started its yearly maintenance on Monday. Flows are anticipated to cease for 10 days.
Officials are worried that gas supplies may not resume on July 21 once the scheduled maintenance work is finished, exacerbating Europe’s energy supply crisis and potentially hastening a recession at a time when tensions between Europe and Russia are at their highest in decades over the war in Ukraine.
The dollar index has been moving upward as a result of the euro’s weakness, as well as concerns about global economic development as China, in particular, enforces tough zero-COVID measures to control new outbreaks.
But possibly the most significant driver of the dollar’s increase is the expectation that the Fed Reserve will hike rates faster and further than peers.
Investors will be looking for hints on the outcome of the Federal Reserve’s impending policy meeting before the pre-meeting blackout period, when trading activity is restricted, on Wednesday, as well as macro data, including US consumer inflation.
A strong inflation reading would put even more pressure on the Fed to accelerate the rate at which interest rates are raised.