Euro bounces after reaching brink of parity with US dollar

By Karen Brettell and Sujata Rao

NEW YORK (Reuters) – The euro rebounded on Tuesday after earlier sliding to a 20-year low and effectively reaching parity against the U.S. dollar as investors worried that an energy crisis in the region will tip the economy into recession.

The single currency reached $1.00005 against the greenback, the lowest since Dec. 2002, after data showed that German investor sentiment plunged below levels at the outset of the coronavirus pandemic in July due to energy concerns, supply bottlenecks and rate hikes from the European Central Bank.

“For all intents and purposes, it effectively reached parity,” said Mazen Issa, senior FX strategist at TD Securities in New York.

“It seems like it’s a very gloomy outlook for the euro…. a sub-parity paradigm is very much in the cards,” Issa said, adding that the single currency could drop to the $0.85-$0.90 area against the greenback.

GRAPHIC: Germany ZEW survey https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnegwwpq/Pasted%20image%201657621170966.png

The dollar is benefiting from expectations that the Federal Reserve has more room to hike rates than peers, which are facing more challenging growth outlooks.

Concerns that Europe could fall into a recession have increased since the biggest single pipeline carrying Russian gas to Germany, the Nord Stream 1 pipeline, began annual maintenance on Monday. Governments, markets and companies are worried the shutdown might be extended because of the war in Ukraine.

The single currency was last $1.0050, after bouncing from the $1 level, which some analysts attributed to technical factors relating to options activity and short-covering.

Neil Jones, head of currency sales at Mizuho, said markets had been ‘short’ on the euro in anticipation of a break below parity, but “we didn’t get it and now these shorts are buying back into the early New York market.”

GRAPHIC: Euro-dollar parity https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwzkoapo/Pasted%20image%201657613096884.png

A possible catalyst that could push the euro back lower could be highly anticipated inflation data on Wednesday, which is expected to show that U.S. consumer prices rose by an annual rate of 8.8% in June.

“We may have to wait for U.S. CPI…or a clearer picture for European energy markets once planned maintenance in Nord Stream comes close to finalising for euro-dollar to break the (parity) threshold,” said Simon Harvey, head of FX at Monex Europe.

Meanwhile the Australian dollar rebounded from a two-year low, after being hurt by global growth concerns as China implements new COVID-19 curbs.

The Aussie was last up 0.22% at $0.6752, after earlier falling to $0.6712, the lowest since June 2020.

The U.S. dollar fell 0.55% against the Japanese yen to 137.33, after hitting 137.73 on Monday, the strongest level in 24 years.

In the cryptocurrency market bitcoin dipped 0.46% to $19,858.

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Currency bid prices at 10:40AM (1440 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 108.0600 108.1600 -0.08% 12.959% +108.5600 +107.9600

Euro/Dollar $1.0050 $1.0041 +0.09% -11.60% +$1.0070 +$1.0001

Dollar/Yen 136.6450 137.4150 -0.55% +18.72% +137.5300 +136.4700

Euro/Yen 137.33 137.93 -0.44% +5.38% +138.0700 +137.0300

Dollar/Swiss 0.9814 0.9834 -0.19% +7.60% +0.9858 +0.9813

Sterling/Dollar $1.1870 $1.1894 -0.23% -12.25% +$1.1909 +$1.1808

Dollar/Canadian 1.3021 1.3006 +0.11% +2.97% +1.3050 +1.2997

Aussie/Dollar $0.6752 $0.6737 +0.22% -7.12% +$0.6760 +$0.6712

Euro/Swiss 0.9863 0.9869 -0.06% -4.88% +0.9898 +0.9837

Euro/Sterling 0.8465 0.8440 +0.30% +0.77% +0.8484 +0.8434

NZ $0.6127 $0.6114 +0.16% -10.53% +$0.6137 +$0.6103

Dollar/Dollar

Dollar/Norway 10.2150 10.1930 +0.31% +16.06% +10.2675 +10.2070

Euro/Norway 10.2724 10.2409 +0.31% +2.59% +10.2892 +10.2403

Dollar/Sweden 10.5671 10.6317 -0.55% +17.18% +10.6843 +10.5425

Euro/Sweden 10.6207 10.6793 -0.55% +3.78% +10.6926 +10.6044

(Additional reporting by Saikat Chatterjee in London, Editing by Angus MacSwan)