For the first time since 2002, the euro has reached parity with the US dollar. The euro is affected by the risk of a cut in Russian gas supplies to the European Union.
The euro fell to one dollar on Tuesday, a level not seen since the year it was introduced two decades ago, weighed down by the risk of a cut in the euro. Russian gas supplies for the European Union.
Investors favored the greenback which has gained almost 14% since the start of the year and is ;is briefly traded at one dollar for one euro, a high since December 2002, when questions about the brand new single currency weighed on its price.
The market is worried about a major energy crisis on the Old Continent, doubting Russia's restoration of gas flows after a maintenance interruption on the Nord Stream 1 gas pipeline. This situation heightens 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 alleviate the energy crisis with Russia has no positive impact, comments Jeffrey Halley, an analyst at Oanda.
“The key question is whether the gas will come back after the July 21. The markets seem to have already made their decision.
—Jeffrey Halley, Analyst at Oanda
For UBS analyst Mark Haefele, a halt in Russian gas deliveries to Europe would cause a eurozone-wide recession with three consecutive quarters of economic contraction.
The European Central Bank (ECB) will therefore find it difficult to tighten monetary policy to combat runaway inflation without worsening the economic situation.
The United States Federal Reserve (Fed) has more room to continue its rate hikes, as Friday's jobs data showed the US economy is holding up better for now.
The tumble of the euro could still continue.
European Central Bank Tower ( ECB). It will be difficult to tighten monetary policy in Europe to fight inflation, without worsening the economic situation – Europe risks a recession (Archives).
On Wednesday, inflation data from France, Germany and the United States could 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, with investors betting that the Fed will have to act even faster to raise rates, says Fawad Razaqzada, analyst at Forex .com.
The euro rallied ever so slightly after hitting the dollar, and was trading around 10:10 GMT for $1.0024.
Investors are struggling to cross the symbolic cap of parity and to make the euro fall below this level, estimates Walid Koudmani, analyst at XTB.
“This slow pace proves that this is a movement in the duration of selling the euro and buying the dollar, and not a manipulation of the market. »
— Fawad Razaqzada, analyst at Forex.com
The euro is also struggling against the Swiss franc, also a safe haven asset: it fell to 0.9836 Swiss francs, a lowest since 2015.
And the dollar also shines against other currencies considered vulnerable to risk: the pound plunged to $1.1807, the lowest level since March 2020, when the onset of the COVID-19 pandemic in Europe , in the midst of Brexit negotiations, had caused the British currency to fall to its lowest level since 1985.
Almost half of the products imported into the euro zone are invoiced in dollars, against less than 40% in euros, according to the European statistics office Eurostat.
This is for example the case for many raw materials, starting with oil and gas, whose prices have already risen in recent months in the context of the war in Ukraine.
But with the depreciation of the European currency, more euros are needed to buy imported products in dollars. Imported products lose competitiveness […] and are therefore more expensive, says Isabelle Méjean, professor at Sciences Po. This contributes to accelerating inflation and threatens the purchasing power of households.
Incidentally, the depreciation of the euro against the dollar will clearly slow down European tourism, especially in the United States, warns William De Vijlder, an economist at BNP Paribas: as they need more euros to pay the same amount in dollars, the bill for their stay increases in the United States, as well as in countries whose currency is pegged to the dollar (Qatar, Jordan).
On the other hand, American tourists, but also Qatari or Jordanian tourists, gain from the exchange: during their stays in the euro zone, they can consume more with the same amount of dollars.
L' The effect of the fall in the euro varies according to companies' dependence on foreign trade and energy.
< p>“Companies that export outside the euro zone benefit from the depreciation of the euro, because their prices are more competitive [once converted into dollars Editor's note], while companies that import find themselves penalized. »
— Philippe Mutricy, director of studies at the public bank Bpifrance
On the other hand, for companies dependent on raw materials and energy and which export little, such as local craftsmen , costs are exploding.
The big winner of the fall in the euro is the manufacturing industry, which exports its products abroad, especially abroad. x27;aeronautics, automotive, luxury or chemicals.
And large groups are better prepared for shocks, because they benefit from a hedging mechanism which makes it possible to attenuate the fluctuation of currency rates, underlines Philippe Mutricy. They buy currencies in advance at an attractive rate which protects against price variations.
For the repayment of the debt of European countries, the impact is less obvious.
More growth can make it easier to pay down debt, says Isabelle Méjean, provided markets view European debt as safe enough and interest rates stay low.
But for states that have issued bonds denominated in dollars, a depreciation of the euro against the dollar increases the cost of repayment.
The depreciation of the euro the euro, by accelerating inflation, may encourage the ECB to raise its interest rates more quickly. It is preparing to raise them in July for the first time in eleven years.
You could say that the ECB should not react to higher commodity prices, but its challenge to regain the Control over inflation becomes even greater, as the price of imports increases due to the increase in the exchange rate, William De Vijlder points out.
The Bank de France also estimated at the end of May that the weakness of the euro could complicate the ECB's efforts to control inflation.