The euro fell below one dollar today because risk aversion leads investors to take refuge in the greenback and because of speculation that the Federal Reserve (Fed) it will be even more aggressive and will raise its interest rates by a greater amount.
The euro was trading at $0.9988 by 3pm GMT, down from $1.0066 in late European forex trading the previous day.
The European Central Bank (ECB) set the reference exchange rate for the euro at 1.0005 dollars.
The rise in inflation in the US in June to 9.1% year-on-year, the highest since 1981 (8.6% in May), has fueled speculation that the Federal Reserve (Fed) will be more aggressive in restricting its monetary policy to growth coast.
Markets have already priced in a 75 basis point hike in July and are now speculating on an even higher 100 basis point hike.
For months now, the aggressive and rapid rises in interest rates in the US have strengthened the dollar and weakened the euro, whose fall has accelerated in recent weeks.
Concerns about gas supplies from Russia to Germany and the possibility of the economy entering a recession also weaken the euro.
The Russian gas consortium Gazprom (MCX: GAZP ) said on Wednesday that right now it cannot guarantee the safe operation of the Nord Stream gas pipeline, which transports Russian gas to Germany under the Baltic Sea, due to doubts about the turbine retained in Canada, whose return has no record.
“The greenback is still overvalued if we take into account the theories of purchasing power parity, the twin current and fiscal account deficits, etc,” considers Welzia Management’s Investment Director, Miguel Uceda.
A weak euro imports inflation because purchases of energy assets are in dollars and therefore imports of products in dollars cost much more.
By paying more for imported products in dollars, the rise in prices is further increased.
On the other hand, exports of products and services from the euro zone to the US are becoming cheaper.
“Greater political instability in Italy could well be the straw that breaks the camel’s back (of parity),” comment analysts at Monex Europe.
The 5 Star Movement (M5S), one of the main parties of the government coalition in Italy, abstained from voting today on a confidence motion for Prime Minister Mario Draghi in the Senate, which has opened a government crisis in the country.