Euro reaches parity with the dollar for the first time in 2 decades

The euro on Tuesday (12) reached parity with the dollar for the first time in two decades, affected by the threat of cutting Russian gas supplies to the European Union.

Investors favor the American currency, considered a safe haven, which has appreciated 14% since the beginning of the year and reached one dollar per euro at 9:50 am GMT (6:50 am GMT), the highest price against the European currency since December 2002.

The market fears a worsening of the energy crisis in Europe due to the interruption of the flow of Russian gas that arrives through the Nord Stream 1 gas pipeline, currently under maintenance. The tension fuels fears of a recession in Europe.

Gas from Russia is at “the center of the storm in Europe” and Saturday’s announcement that Canada will return turbines to Germany to ease the energy crisis with Russia “has not had a positive impact”, said analyst Jeffrey. Halley, from the Oanda company.

Russian group Gazprom began maintenance work on Monday (11) on the Nord Stream 1 pipeline, which transports gas directly from Russia to Germany. European countries are waiting to find out if Moscow will restore supply after the works, which are scheduled to last ten days.

“The key question is whether gas will come back after July 21st. The markets seem to have already made a decision,” Halley said.

For Mark Haefele, an analyst at UBS, a suspension of Russian gas supplies in Europe “would trigger a recession across the eurozone with three consecutive quarters of contraction in the economy”.

A recessionary scenario would make the work of the ECB (European Central Bank) more difficult if the institution wants to end its expansionary monetary policy and move into a contraction phase to combat the inflation that worsens the situation.

At the same time, the Federal Reserve (Fed, US central bank) has more leeway to continue raising rates, as the employment numbers released on Friday (8) proved that the US economy has greater resilience in the time.

Shelter value

The euro’s fall may continue in the coming weeks.

Data on inflation in Germany, France and the United States may fuel investor concern on Wednesday (12).

“If US inflation turns out to be higher than the market expects, it could benefit the dollar as investors bet the Fed will have to go even faster to raise rates,” said Fawad Razaqzada, an analyst at Forex.com. .

The euro registered a slight increase after reaching parity with the dollar and at 10:10 GMT (7:10 am GMT) it was trading at USD 1.0024 (R$ 5.3).

The dollar also appreciates in comparison to other currencies considered vulnerable to risk. The price of the pound sterling fell to US$ 1.1807 (R$ 6.3), a level that had not been recorded since March 2020, when the beginning of the new coronavirus pandemic in Europe, during the Brexit negotiations, caused the fall. of the British currency to the lowest value since 1985.