Euro, U.S. Dollar Now At Parity For 1st Time In 20 Years
The exchange rate between the euro (EUU) and the US dollar has reached parity for the first time in 20 years, meaning the two currencies are worth the same—Nicole Goodkind reported for CNN Business.
Photo Insert: Analysts believe that a succession of aggressive interest rate hikes by central banks, especially the Fed, will keep pressure on the euro while driving investors to the US dollar as a safe haven.
The euro struck $1 on Tuesday, down around 12% since the beginning of the year. Fears of a recession abound on the continent, fueled by soaring inflation and energy supply uncertainties brought on by Russia's invasion of Ukraine.
Before the war, the European Union (EU) got around 40% of its gas through Russian pipelines, and it is striving to lessen its reliance on Russian oil and gas.
At the same time, Russia has reduced gas supplies to some EU countries and recently reduced the flow of the Nord Stream pipeline to Germany by 60%.
That critical component of European gas import infrastructure has now been shut down for scheduled repair during the last ten days. German officials are concerned that it will not be turned back on.
The oil crisis coincides with an economic slowdown, raising questions about whether the European Central Bank can tighten policy sufficiently to reduce inflation. The ECB indicated this month that it will raise interest rates for the first time since 2011, despite eurozone inflation remaining at 8.6 percent. However, critics argue that the ECB is well behind the curve and that a hard landing is all but certain.
Last week, Germany posted its first goods trade deficit since 1991, as rising fuel prices and overall supply chain turmoil drove up import prices.
"Given the nature of Germany's exports which are commodity-price sensitive, it remains hard to imagine that the trade balance could improve significantly from here in the next few months given the expected slowdown in the eurozone economy," Saxo Bank foreign exchange strategists wrote in a recent note.
Analysts believe that a succession of aggressive interest rate hikes by central banks, especially the Fed, will keep pressure on the euro while driving investors to the US dollar as a safe haven.