The euro is now worth the same as the dollar, marking a 20-year low in the currency. Further drops are expected if energy supplies get tighter and European production comes to a standstill, reports the FD.
ING currency specialists Chris Turner and Francesco Pesole told the paper that euro-dollar parity is ‘the most important psychological factor’ in foreign exchange markets. ‘Fireworks are obvious,’ they reportedly said.
Some experts say the currency could fall as low as $0.95 this month. The increasing price of energy in a eurozone heavily dependent on Russian gas has led to a trade deficit, increasing the supply of euros and depressing the exchange rate.
The EU has faced unheard of trade deficits in recent months, with even economic powerhouse Germany last week recording its first trade deficit in goods since 1991. Rising fuel prices and supply chain disruptions have significantly increased the price of imports.
‘Given the nature of Germany’s exports, which are commodity-price sensitive, it is 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.
The euro has already lost some 11% of its value relative to the dollar this year. As the global economy slows down, the dollar is once again seen as a safe haven.
Recession fears and inflation are also pressuring the euro. The European Central Bank (ECB) says it will hike interest rates this month for the first time since 2011, as eurozone inflation hits 8.6%. But some analysts say the ECB is acting too slowly compared to the US Federal Reserve, which has hiked interest rates by 75 basis points and indicated that more rate increases will come this month.
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