Investors fear that the euro will be pushed to the edge of parity with its US counterpart, the dollar, as the euro fears an energy crisis could cause regional economic collapse.
The single currency fell to $1.0003 Tuesday morning. This was due to fears that the planned shutdown of Nord Stream 1 – which transports natural gases from Russia to Europe – for maintenance might be made permanent.
Russia’s invasion of Ukraine in February caused concern over Europe’s energy supply. This has led to the euro being 12% lower this year against the US dollar.
Expectations of more aggressive interest rate increases by the US Federal Reserve are also driving the euro higher.
Mizuho, a Japanese bank analyst, said that the move to euro-dollar parity was occurring because “recession is priced in”.
Neil Wilson, chief market analyst at Markets.com said that the euro was close to parity with the US dollar for the first time since 2002. The euro has been sliding for months, but it fell again this week due to fears that Russia might cut off gas supplies to Europe. Bruno Le Maire, the French finance minister and economy minister, warned that Moscow could pull the plug. This further fuels the fear of recession in the bloc, and the currency simply cannot be bought.
Wilson stated that it was now time for the European Central Bank’s decisive action.
He said, “The ECB keeps fiddling while the currency burns. This causes worse inflation and more misery to the population.” Time for an urgent inter-meeting increase to prove they are serious – it’s clear that the market doesn’t believe anymore in the ECB. It’s insane that inflation is above 8% and interest rates are still negative.
On Tuesday morning, the pound fell to $1.185 against the dollar. This was the lowest level since March 2020 due to political uncertainty and economic woes. Many candidates are promising tax cuts as the race heats up to succeed Boris Johnson, who is currently a prime minister.
“The economic outlook is being questioned by the pressure on sterling and the euro. Wilson stated that currencies are “sitting ducks” because of the high inflation and lack of a plan to control it.
The timeline was created by the 1922 Committee of the Conservative party. It was used to select a Tory leader or prime minister and announced the winner on Monday night.
Rishi Sunak (the former chancellor) launches his campaign to become the Tory leader later Tuesday.