The euro falls to a 20-year low, putting parity with the dollar in sight


The euro slipped to a 20-year low against the US dollar as investors trimmed their bets on interest rate hikes by the European Central Bank, fueling bears’ belief that the shared-currency will plummet and reach parity with the greenback by the end of 2022 .

The single currency fell as much as 1.2 percent to $1.0298, its weakest level since December 2002. The losses came as money markets scaled back bets that the ECB would tighten after French services PMI revised lower on Tuesday which widened the interest rate differential with the Federal Reserve.

The euro has fallen more than 9 percent against the dollar this year as record inflation has escalated pressure on households and businesses and combined with the aftermath of the war in Ukraine, is hampering the ECB’s ability to raise interest rates as quickly as the Fed to raise According to Bloomberg’s options pricing model, there is now a 60 percent chance the currency will reach parity against the dollar by year-end, up from 46 percent on Monday.

“Parity is now just a matter of time,” said Neil Jones, head of foreign exchange sales to financial institutions at Mizuho.

Traders are betting the ECB will deliver less than 140 basis points this year compared to more than 190 basis points almost three weeks ago. They expect policymakers to start their first tightening cycle in ten years later this month with a 25 basis point hike. The Fed has already hiked rates by 150 basis points, with markets pricing in an 80 percent chance of a 75 basis point hike at its July meeting.

“It’s hard to say much positive about the EUR,” said Dominic Bunning, head of European FX Research at HSBC, who expects the common-currency to trade at par with the dollar this year. “With the ECB sticking to its line that we will only see a 25 basis point hike in July while others are moving much faster and awaiting faster tightening in September, there is also little support from higher yields.”

Tuesday’s losses were compounded by poor liquidity and selling in euro-Swiss francs, according to three Europe-based traders. The euro fell 0.9 percent against the Swiss franc to 0.99257, its lowest level since 2015.

“The FX market is not fully liquid again in light of the US holiday,” Mizuho’s Jones said. “Each trade size is likely to have a greater impact on market movement.” The euro falls to a 20-year low, putting parity with the dollar in sight

Fry Electronics Team

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