Dive. The euro, weighed down by the gloomy outlook for the European economy, with the possibility of a stoppage of Russian gas supplies, plunged on Wednesday below the symbolic threshold of one dollar, which had not been crossed since December 2002 As inflation accelerates in the United States and opens the door to an even tighter monetary policy across the Atlantic, the euro traded for 0.9998 dollars around 10:45 a.m., a first since the year of its setting. in circulation.
The day before, Tuesday, the euro had fallen to one dollar, a threshold that had not been reached there either since the year of its introduction two decades ago. The market is indeed worried about a major energy crisis on the Old Continent, doubting Russia’s restoration of gas flows after an interruption for maintenance on the Nord Stream 1 gas pipeline. This situation accentuates fears of recession in Europe.
Energy from Russia “is at the heart of the turmoil in Europe” and Canada’s announcement on Saturday that it would return turbines destined for the Nord Stream gas pipeline to Germany to ease the energy crisis with Russia “is without a positive impact,” comments Jeffrey Halley, analyst at Oanda.
No doubt just a start
On Monday, Russian energy giant Gazprom began ten days of maintenance on the Nord Stream 1 gas pipeline. Germany and other European countries are waiting to see if gas delivery will be restored. “The key question is whether the gas will come back after July 21. The markets seem to have already made up their minds,” notes Halley. For Mark Haefele, an analyst at UBS, a halt in Russian gas deliveries to Europe “would cause a recession throughout the euro zone with three consecutive quarters of economic contraction”.
The European Central Bank (ECB) will therefore find it difficult to tighten its monetary policy to fight galloping inflation without worsening the economic situation. The US Federal Reserve (Fed) has more leeway to continue its rate hikes, as employment figures released on Friday showed that the US economy is holding up better so far.
The euro’s tumble could still continue. Inflation data from France, Germany and the United States released on Wednesday continued to fuel investor concerns about a divergence of 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 rates, said Fawad Razaqzada, analyst at Forex.com.