The euro fell to near parity with the U.S. dollar Tuesday for the first time in 20 years when the currency was introduced in circulation with bills and coins.
With the risk of a cut in Russian gas supplies for the European economy, investors are favoring the greenback, which has gained nearly 14% since the start of the year and briefly traded at a dollar for a euro around 09:50 GMT, a peak since December 2002.
After a maintenance interruption on the Nord Stream 1 pipeline from Russia to Germany, the market fears major energy crisis in Europe with fears of a recession.
On Monday, Russian energy giant Gazprom began ten days of maintenance on the Nord Stream 1 gas pipeline. Germany and other European countries are waiting to see if gas delivery will be restored. Canada’s announcement that it would return turbines destined for the Nord Stream gas pipeline to Germany to ease the energy crisis with Russia “is without a positive impact,” according to Jeffrey Halley, an analyst Oanda: “The key question is whether gas will come back after July 21. The markets seem to have already made up their minds.”
UBS analyst Mark Haefele said a halt in Russian gas deliveries to Europe “would cause a recession throughout the euro zone with three consecutive quarters of economic contraction.”
While the European Central Bank will find it difficult to tighten its monetary policy to fight inflation without worsening the economic situation, the U.S. Federal Reserve has more leeway to continue its rate hikes, as employment figures released on Friday showed that the U.S. economy is faring better.
On Wednesday, inflation data from France, Germany and the U.S. could fuel investor concerns about a divergence of economies on both sides of the Atlantic. “If U.S. inflation is stronger than the market expects, it could benefit the dollar,” said Fawad Razaqzada, an analyst at Forex.com, adding that investors are betting that the Fed will have to act even faster to raise rates.
The euro rose slightly and and traded for 1.0024 dollars around 10:10 GMT.