Euro on the brink of parity with the dollar for the first time since 2002, as fears of recession mount | Business news


The US dollar and European single currency moved within a streak of parity for the first time since 2002 on Tuesday morning, as financial markets worried about the likelihood of a future global recession.

The euro officially fell to $1,00001, according to data from Refinitiv, before regaining some ground after the scare.

There had been talk in the market that parity had technically been reached, but that was later discounted by updated numbers.

However, analysts say it’s only a matter of time, as the dollar, a haven for investors worldwide in uncertain economic times, matches a euro battered by the harsh inflation background caused by the end of the pandemic and the war in Ukraine.

The US central bank has taken aggressive measures against inflation, with interest rate hikes traditionally also supporting the strength of a currency.

Its counterpart in Frankfurt has yet to raise rates as it has only just completed its pandemic-related support for growth.

The European Central Bank even has a negative main interest rate to encourage lending, but has indicated it will raise interest rates this month as the single currency zone faces rising inflation and the prospect of a mighty energy crisis ahead of winter.

The biggest market fear is that after annual maintenance on the Nord Stream 1 pipeline, Russia will close the gas taps for production power plant Germany, which supplies other EU countries.

Sarah Hewin, senior economist at Standard Chartered, said: “There doesn’t seem to be much support for the euro at the moment.

“It’s not just about gas prices, but what seems to be a division within the ECB about how far they’re raising rates.”

The market has expected a 0.25 percentage point increase this month, followed by a 0.50 increase in September, but there is pressure for more urgency from the board and economists.

Neil Wilson, chief market analyst at markets.com, was more scathing in his assessment of the ECB’s stance.

He said of the pressure from the euro: “At some point the bears will just drive this through the parity level and be done with it.

When will the ECB act – fragmentation risks or not, the ECB is fiddling with the currency on fire, leading to more inflation and more misery for the population.

“Time for an emergency increase between meetings to show they are serious – the market just doesn’t believe in the ECB anymore. Inflation above 8% and interest rates remain negative… it’s madness.”

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