Trading
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)
Frequently Asked Questions about Euro bounces after reaching brink of parity with US dollar
1What is the euro?
The euro is the official currency of the Eurozone, used by 19 of the 27 European Union member countries. It is denoted by the symbol € and is the second most traded currency in the world.
2What is foreign exchange?
Foreign exchange, or forex, refers to the global marketplace for trading national currencies against one another. It is the largest financial market in the world, where currencies are bought and sold.
3What is monetary policy?
Monetary policy is the process by which a central bank manages the supply of money, interest rates, and inflation to achieve macroeconomic goals such as controlling inflation and stabilizing the currency.
4What is currency hedging?
Currency hedging is a financial strategy used to protect against the risk of currency fluctuations. It involves using financial instruments or market strategies to offset potential losses in currency exchange rates.
5What is economic growth?
Economic growth refers to the increase in the production of goods and services in an economy over a period. It is typically measured by the rise in Gross Domestic Product (GDP).
