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Saturday August 13, 2022

Euro strikes dollar parity as eurozone recession fears mount

The European single currency hit exactly one dollar — its lowest level since December 2002 — before rising to $1.0023

By AFP
July 12, 2022
Euro strikes dollar parity as eurozone recession fears mount

LONDON: The euro struck parity with the dollar Tuesday for the first time in nearly 20 years as a cut in Russian gas supplies to Europe heightened fears of a recession in the eurozone.

The European single currency hit exactly one dollar — its lowest level since December 2002 — before rising to $1.0023.

Oil prices meanwhile fell heavily on concerns of a wider recession as central banks hike interest rates to fight decades-high inflation.

European stock markets fell approaching the half-way mark and in the wake of overnight losses in Asia and on Wall Street.

"The gas crisis has really spooked markets over the eurozone economy," Markets.com analyst Neil Wilson told AFP.

Russian energy giant Gazprom on Monday began 10 days of maintenance on its Nord Stream 1 pipeline — with Germany and other European countries watching anxiously to see if the gas comes back on.

With relations between Russia and the West at their lowest in years because of the invasion of Ukraine, Gazprom may not reopen the valves, according to analysts.

"The next few weeks could be challenging for Europe, with possibly maximum uncertainty stretching into August," said SPI Asset Management's Stephen Innes.

"Investors increasingly believe that gas may not start to flow through Nord Stream 1 again following the scheduled maintenance on July 11-21, with further 'temporary' interruptions seen as likely."

Worries about a COVID flare-up in China — fuelling fears of more lockdowns — added to the downbeat mood, just as investors prepared for a week of economic data and corporate earnings that could have huge implications for markets.

A forecast-beating US jobs report last week suggested the world's top economy was coping with higher Federal Reserve rates, but it also gave the central bank more room to continue tightening — leading to concerns it could go too far and cause a contraction.

The European single currency is also under pressure from the Federal Reserve hiking US interest rates more aggressively than the European Central Bank.

The dollar has jumped 14 per cent against the euro since the start of the year.

Central banks are increasing borrowing costs in a bid to tame inflation, which has been fuelled by soaring energy prices.

Oil and gas prices have rocketed this year after economies reopened from COVID lockdowns and following the invasion of Ukraine by major energy producer Russia.