The euro hits its lowest level in 20 years against the dollar

The euro plunged below parity with the dollar on Monday, at its lowest in nearly 20 years, caught between a major energy crisis in Europe and an American central bank (Fed) still on the offensive to curb inflation.

Around 6:15 p.m. GMT, the euro lost 1.05% to 0.9932 dollars, its lowest since December 2002. The single currency had already fallen below parity for the first time in mid-July.

The announced closure, for maintenance, of the Nord Stream 1 gas pipeline, which supplies the bulk of Russian gas to Europe, between August 31 and September 2, has further accentuated fears of shortages on the Old Continent and boosted natural gas prices in Europe.

"This increases the risk of a significant economic slowdown by the end of the year" in the eurozone, said Shaun Osborne of Scotiabank.

The evolution of energy prices and the question of supply are both very worrying, and this is what is behind this movement “downward in the euro, according to Erik Nelson of Wells Fargo.

The United Kingdom is also caught in this crisis and the pound sterling did little better than the euro on Monday against the greenback. It was flirting with its level of March 2020, in the early days of the pandemic, at 1.1760 dollars for one pound.

 

Prior to 2020, the British pound had not fallen below $1.18 since 1985.

 

Very dependent on Russian supplies, Hungary saw the forint fall to the lowest level in its history against the dollar, at 411 forints to the dollar.

And the week threatens to be even more painful for the euro, because "poor PMI indicators on Tuesday could be enough to anchor the euro under a dollar", he warns.

 

The Fed is still at the forefront

This development places the European Central Bank (ECB) in a “tough” situation, observes Erik Nelson. An increase in its key rate at its next meeting on September 8, expected to be half a percentage point, “would support the euro a little, “but with the risk of worsening the economic situation” of the zone.

And even by daring to raise another half point as the market predicts, after a similar rise in July, the ECB would not catch up on the Fed, which operators are now seeing rise for a third time in a row. rate of 0.75 percentage point in September.

The difference in pace is reflected in bond rates. The spread between the yield on US government bonds at 3 months and those of Germany, for the same maturity, was Monday at its highest for almost three years.

People expect Fed Chairman (Jerome) Powell to adopt a speech perhaps a little more offensive than in July” during his address, scheduled for Friday at the annual meeting of central bankers. in Jackson Hole, Wyoming.

 

Some analysts see the euro slipping even more as the cold season arrives, in particular Nomura, which evokes the single currency at 0.95 dollars by October, or even below.

 

But for Shaun Obsorne, "the dollar has already gone very high and we are not convinced that it will go much further in the medium term.

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