The euro traded for $0.9998 on Wednesday, a first since the year it was put into circulation.
Faced with a dollar boosted by a higher than expected inflation figure, the euro briefly plunged on Wednesday below the symbolic threshold of one dollar, which had not been crossed since December 2002, against a backdrop of energy crisis in Europe . The euro fell to 0.9998 dollars around 12:45 GMT, in the wake of the publication of inflation data in the United States, before rebounding. It closed slightly up 0.21% from the previous day, at $1.0059.
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The greenback was boosted by the release of the CPI price index for June, which showed inflation at 9.1% year on year in the United States, higher than the 8.8% expected by economists. This digit “keep big rate hikes on the table for upcoming Fed meetings(American central bank), commented, in a note Joe Manimbo, of Western Union. Operators have significantly revised their monetary policy projections for the Fed, and estimated on Wednesday at 74% the probability of a one percentage point increase in the Federal Reserve’s key rate, which would be a first since the 1980s.
Also on Wednesday, the Bank of Canada surprised by adding 1 point to its key rate, which went from 1.5% to 2.5%. “In a way, it laid the groundwork for the Fed“, explained Matthew Weller, of StoneX. “I found it interesting that the Bank of Canada explained that (in their opinion) the best way to make the economy a soft landing was to raise rates a lot now, then do less afterwardssaid the analyst. Wednesday’s contraction in US long-term bond yields, which had initially jumped after the release of the CPI index, nevertheless shows that investors expect a sharp slowdown in economic growth in the distant horizon.
How low will the euro go?
The resistance encountered around the parity between the euro and the dollar “are one of the clearest examples of the enormous influence that a psychological threshold can have on the market“, according to Matthew Weller, for whom the single currency “could afford a short-term rebound“. For Stephen Innes, analyst at SPI Management, “euro rebounds are likely to be followed by selling until (the pipeline) Nordstream 1 resumes» its deliveries of Russian gas to Europe.
Concerns about a complete cessation of Russian gas exports to Europe are growing: the French government mentioned this weekend a “probable» cutting off supplies. “How far can the euro’s descent go? It probably depends on Russia’s willingness to escalate the economic war with Europecommented Rabobank analyst Jane Foley, noting that “guessing President Putin’s intentions is not easy».
Given the sluggish economic growth in the euro zone, the European Central Bank (ECB) can hardly raise its rates sharply to combat inflation, which in June reached 5.8% in France and 7.6% in Germany, according to data released Wednesday morning. The current low interest rates, especially compared to many other major economies, weigh on the European currency, considered less attractive and which has lost almost 12% of its value since the beginning of the year. “The ECB does not target any particular exchange rate. However, we are still monitoring the effect of the foreign exchange market on inflationsaid an ECB spokesperson on Wednesday.
The dollar is particularly important because it is the reference currency for many markets, including the oil market. The euro is not the worst off in the face of the irresistible march of the “greenback“, which pushes everything in its path since the beginning of the year. “This puts many emerging countries under pressure“, insisted Huw Roberts, of Quant Insight, in particular the large importers of raw materials, black gold in particular. The Egyptian pound recently fell to its lowest level in 5 years, the Thai baht in 6 years, and the Bangladeshi taka is at its lowest level against the dollar.
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