The Euro dropped below Dollar parity on Monday, August 22, 2022. The Euro closed below $1 on Friday, August 26, 2022, as the energy crisis looms high.
Euro Slips Below $1 in August 2022
The Euro to Dollar slipped below the Dollar value last week. The EUR to USD currency pair slid to a low of $0.9900 on Tuesday and recovered to $0.9961 on Friday. Though the Euro to Dollar currency pair saw a small rebound to the $1 mark on Friday, it could not hold on to the psychological level. There are growing concerns as investors expect further weakness in the Euro value.
The Euro was at par with the US Dollar in 2015 but bounced higher to 1.25 in 2018. The EUR/USD started its downward momentum from April 2021 at the start of the Covid pandemic and continues to move lower. If the Euro weakness continues, the economy may face a recession.
However, it is to be noted that the EUR/USD currency pair slid to a low of 0.8404 in the year 2000. The covid pandemic in 2020 and the energy crisis in 2022 have led to a huge drop in the Euro prices.
The Euro saw a massive fall last week, dropping below the US Dollar value. It is the first time in twenty years that the Euro slipped below the Dollar parity. Energy supply chain constraints have brought the inflation rate to near 9% in the Euro region, lowering the value of the Euro.
The Euro-region is already facing problems of high inflation and rising electricity prices. European households are facing difficult times as high inflation has hit every economy. Imports have become costly, while exporters enjoy a decline in the value of the Euro.
Annual inflation in the Euro area in July 2022 was 8.9% in July 2022. In June 2022, inflation was at 8.6%. The increasing inflationary rates forced the ECB to hike rates, for the first time since 2011. The ECB President Christine Lagarde says it is imperative to address inflation rates to gain control over rising price pressures. The ECB signals more rate hikes to curb rising inflationary pressures in the Eurozone.
Major banks like Goldman Sachs and JPMorgan predict a recession in the Eurozone as energy prices continue to climb higher.
Russian Supply of Natural Gas
The Eurozone is unable to meet its energy requirements as it depends on Russia. Germany and Italy are the two largest importers of natural gas supply from Russia. But with the Russian-Ukraine war, the energy supply to Europe has fallen heavily.
Russia launched its attack on Ukraine on February 24, 2022. The war is raging on for more than seven months, destroying lives and bringing disaster to the economy. Many soldiers from both parts of the countries have laid down their lives in the war. There is rising tension between the Western countries and Russia. Russia has cut down natural gas supplies to the Euro continent.
The European Union countries have shielded households and companies from rising energy prices. Many energy savings campaigns have been announced in the EU to meet the energy crisis. Analysts predict that the impact of soaring energy prices will get magnified during the winter season.
The heating of private swimming pools during the cold winter season is banned in Germany. France has introduced an energy price cap for households until December 31. Gas prices in Europe were at 341 Euros per MWh on Friday. The record high energy prices are the key factors that cause high inflation.
The Euro to British Pound is at 0.8477. The energy crisis has hit the United Kingdom, and the British Pound is trading at two-year lows at 1.1747.
The Euro to Japanese Yen remains range bound at the 136 regions. A rise above 138.00 may cause the EUR/JPY currency pair to rise higher, while a slide below the 135 regions will set a downward momentum.
US Dollar Soars Higher as a Safe-Haven Asset
The greenback is gaining value as a safe-haven asset, as investors prefer investing in the US Dollar to handle the recession prevailing in many countries.
Speaking at the Jackson Hole meeting on Friday, Fed Chairman Jerome Powell said, “Reducing inflation is the prime focus”. A hike in interest rates will help to reduce inflation and bring price stability. There is rising joblessness and slow economic growth to be addressed.
The Euro lost its parity with the Dollar as it slipped below the psychological level of $1. The aggressive rate hikes in the US are another reason for the falling Euro to Dollar value. The economic turmoil is causing the single currency to move lower to two-decade lows.
The global risk sentiment has strengthened the US Dollar to 108.75 levels. Unless energy prices cool down, the technical picture for the Euro to Dollar remains lower.