Euro, dollar a penny away from parity for the first time in 20 years
For the first time in nearly two decades, the exchange rate between the euro and the US dollar is nearly equal.
The euro fell to a 20-year low on Monday, approaching parity with the dollar amid concerns that the European Union’s energy crisis could push the region into recession. The euro was trading at around $1,007 on Monday afternoon in the US, down about 15% from the start of the year.
The parity between the two currencies comes as Russia shuts down a major pipeline – Nord Stream 1 – bringing gas to Germany for annual maintenance. And while routine work involving “testing mechanical components and automation systems” is due to end on July 21, German officials fear that the suspension of Russian gas could last longer than expected due to the war in Ukraine.
“Anything is possible, everything can happen,” German Economy Minister Robert Habeck told Deutschlandfunk radio on Saturday. “It could be that the gas is flowing again, maybe more than before. It could also be that nothing is coming in.”
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Meanwhile, the dollar has been boosted by a growing risk aversion in the US: investors are fleeing toward the dollar as a safe haven of sorts as the Federal Reserve moves to raise interest rates at the fastest pace since 1994 to rein in white inflation. Federal policy makers already agreed to a 75 basis point hike in June and are expected to do so again at the end of July as they race to cool consumer demand.
The US central bank is raising interest rates much more aggressively than the European Central Bank, which also helped boost the dollar. And while recession fears are growing in the US, experts believe the odds of an economic downturn in Europe are even higher.
Kristalina Georgieva, managing director of the International Monetary Fund, said this week that business conditions in the European Union have “significantly worsened” in recent months.
“Indeed, this is a heavy cloud hanging over European assets at the moment, and it was among the worst performing globally yesterday as the possibility of a gas chaotic situation and recession loomed,” Jim Reed, strategist at Deutsche Bank, wrote in a research note. last week.
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A strong US dollar is good news for Americans traveling to Europe this summer, who expect to pay less for a large number of goods while abroad.