The euro traded near par with the dollar on Tuesday (12th) as the euro zone’s energy supply crisis and economic woes continued to weigh on the euro.
The euro was down 0.2 percent at around $1.002 in early London trade, edging closer to parity with the dollar.
Fears of a recession have grown in recent weeks as uncertainty over EU energy supplies has grown; Russia has threatened to further reduce gas flows to Germany and the continent.
Russia on Monday suspended gas transmission through the Nord Stream 1 gas pipeline for annual summer maintenance work. The pipeline is Europe’s largest gas import facility, transporting about 55 billion cubic meters of gas annually from Russia to Germany via the Baltic Sea.
An expected 10-day gas suspension has raised fears of permanent disruptions that could derail the region’s winter supply preparations and exacerbate the gas crisis.
“It’s a critical and obvious psychological level that’s under a lot of threat,” Jeremy Stretch, head of G-10 foreign exchange strategy at CIBC Capital Markets, said on Tuesday (12th).
The possibility of the euro falling below parity reflects growing fears of a recession across the euro zone, he said.
The prospect of a further slowdown also casts doubt on whether the European Central Bank (ECB) can tighten monetary policy hard enough to rein in record high inflation without deepening economic pain.
“The ECB is in a very difficult position. There is a general consensus that the ECB is too slow to end its bond purchases and consider tightening monetary policy,” Streich said.
He said that while the ECB had “obviously missed the boat” at its last meeting, medium-term inflation expectations had fallen back to the ECB’s target threshold, “a sign that maybe in the medium to long term, these inflation expectations may not necessarily be materialized,” he said. However, from the point of view of ECB policy signals, it is clear that swift action is needed.”
Graham Secker, chief European equity strategist at Morgan Stanley, said a weaker euro could boost European companies ahead of the upcoming second-quarter earnings season. Very close to par, so it’s pretty bullish for profits right now, but I think that’s a positive offset to some of the other negatives that are brewing.”
“Right now, we expect the second-quarter earnings season will likely end with net growth,” he added.
