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The euro reaches parity with the dollar, the first since its introduction

A 100 dollar bill and a 100 euro bill.  For the first time in twenty years, the euro has reached parity with the dollar.

The euro fell to 1 dollar on Tuesday 12 July, a threshold that had not been reached since the year it was put into circulation two decades ago. The single European currency is burdened by the risk of a cut in Russian gas supplies to the European Union.

Investors favored the greenback, which has gained nearly 14% since the start of the year and traded briefly at $ 1 for 1 euro as questions about the brand new single currency weighed on its price.

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The market is worried about a serious energy crisis in the Old Continent, doubts that Russia will restore gas flows after the interruption for maintenance of the Nord Stream 1 gas pipeline. This situation accentuates fears of recession in Europe.

Energy from Russia “It is at the center of turbulence in Europe” and Canada’s announcement on Saturday that it would return the turbines for the Nord Stream pipeline to Germany to alleviate the energy crisis with Russia “Has no positive impact”comments Jeffrey Halley, an analyst at Oanda.

The Nord Stream 1 pipeline under maintenance

On Monday, the main Russian energy group Gazprom began ten days of maintenance on the Nord Stream 1 gas pipeline. Germany and other European countries are waiting to see if the gas supply will be restored. “The key question is whether gas will return after 21 July. The markets seem to have already decided “observes Mr. Halley. For Mark Haefele, UBS analyst, the end of Russian gas deliveries to Europe “It would cause a recession across the eurozone with three consecutive quarters of economic contraction”. The European Central Bank (ECB) will therefore have difficulty in strengthening its monetary policy to fight runaway inflation without worsening the economic situation.

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The US Federal Reserve (FED) has more leeway to continue its rate hikes, as employment data released Friday showed the US economy is holding up better so far. The fall of the euro could still continue.

Difficulty against the Swiss franc

On Wednesday, inflation data from France, Germany and the US could fuel investor concerns about diverging economies on both sides of the Atlantic. “If US inflation is stronger than the market expects, it could benefit the dollar”Investors are betting that the Fed will have to act even faster to raise its rates, said Fawad Razaqzada, an analyst at Forex.com.

The euro rose slightly after reaching $ 1, and was trading around 12:10 for $ 1.0024. “Investors are struggling to cross the symbolic threshold of parity” and bring the euro below that level, XTB analyst Walid Koudmani said. “This slow pace shows that this is a long-term move, selling the euro and buying the dollar, and not market manipulation.”adds Mr. Razaqzada.

The euro is also struggling against the Swiss franc, also a safe haven asset: it fell to 0.9836 Swiss francs, the lowest since 2015. And the dollar also shines against other currencies considered vulnerable: the British pound is plunged to $ 1.1807, the lowest level since March 2020, when the onset of the Covid-19 pandemic in Europe, in the midst of Brexit negotiations, had brought the British currency back to its lowest level since 1985.

Read also: Article reserved for our members How inflation threatens the unity of the Eurozone

The world with AFP

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