London - (AFP) - The fall of the euro against the dollar against the backdrop of the Ukraine war and the growing risks facing the European Union economy led to the parity of the two currencies for the first time in two decades.
The single European currency fell to $0.9952 Thursday, a level not seen since late 2002 when the euro was officially introduced for trading.
However, investors expect that the euro can recover if several hurdles are removed in the coming months.
The first hurdle is the risk of interruption in Russian gas supplies to Europe, which would lead to higher electricity bills and force eurozone countries to reduce some industrial activities.
"If the flow of gas from Russia returns to normal or at least stops declining after the end of the shutdown caused by maintenance work on Nord Stream 1 next week, this will ease the markets' fears somewhat of a crisis," Esther Rechlet, an analyst at Commerzbank, told AFP. Imminent Gas in Europe".
And while the Russian gas giant Gazprom has warned that it cannot guarantee the normal functioning of the pipeline, European countries fear that Moscow may seek to use technical justifications to permanently stop gas shipments and put pressure on them.
French President Emmanuel Macron said Thursday that Russia was using energy as a "weapon of war".
In turn, the analyst at "SBI Asset Management" Stephen Innes warned that if "(Nord Stream 1) is not restarted, the euro will decline and the whole world will feel the repercussions of the economic shock, while the European energy crisis could cause a recession."
"A recession will certainly mean that markets will become more concerned about fragmentation risks in the euro area," said Jane Foley, foreign exchange expert at Rabobank.
Like other central banks, the European Central Bank seeks to avoid strangling the economy by raising interest rates too high.
But he should also consider a possible fragmentation of the debt market, given wide variations in borrowing rates across the eurozone.
The European Central Bank has so far maintained a fairly loose monetary policy to support the economy, while the US Federal Reserve has chosen to raise interest rates and vows to continue to do so to counter inflation.
He is due to announce his monetary policy decision on Thursday, and has indicated that he will raise interest rates for the first time in 11 years.
"If the ECB aims to give a boost to the euro, it will have to raise (the interest rate) by 50 basis points in July and/or indicate that it moves (to raise it) by 75 basis points," S&P analysts said in a note. Offered for the month of September.
They added that "faster (monetary) policy adjustments now will help stabilize inflation expectations and reduce the need for a restrictive policy stance later on."
Economists at Berenberg Bank believe that the euro's decline is more due to the improvement of the dollar, which "has risen strongly against a wide basket of currencies since mid-2021."
The dollar benefited from the Federal Reserve's tightening of monetary policy as it tries to rein in inflation, which hit record levels in June.
"The markets expect the Federal Reserve to raise rates by 100 basis points instead of 75 basis points at its next meeting on July 27," Berenberg experts said.
"If that is the case, that could boost the dollar further," they added.
"By the end of the year, the prospects for declining inflation and more balanced messages from central banks should support a return to risk appetite and easing demand for the US dollar as official rates approach their cyclical peak," Unicredit said.
Its experts indicated that if this is done, the euro will be able to pass the parity stage in the last months of the year 2022.
