The euro is set to slump in the second half of 2022 as fiat money falls to a 20-year low against the US dollar. The decline has spurred fears that the global economy is in recession, and analysts believe that “parity is now just a matter of time.”
The euro is approaching parity with the U.S. dollar
European Central Bank (ECB) policymakers are dealing with record inflation levels, but have been far slower than in the U.S. On June 27-29, ECB members met at the European Central Bank’s annual forum, where ECB President Christine Lagarde, stated: “Monetary policy is in a difficult phase.”
At the forum meeting, Lagarde further noted that the European Union’s first rate hike of the year will take place in July and will be a quarter-point increase. He also noted that there will likely be another rate hike in September, but it will likely be larger than the July hike. Frédéric Ducloze, head of macroeconomic research at Pictet Wealth Management, believes that ECB members probably wish they had raised the bank rate earlier.
“In hindsight, I think many board members would have wanted to raise rates already in June,” Ducloze explained. The Pictet official added, “But it’s a very difficult situation because we know we’re headed for an economic slowdown.”
Problems related to inflation and the war in Ukraine have left the EU in financial distress, with few options on the table. Europe’s economic woes have put tremendous pressure on the euro, the region’s sovereign fiat currency, which spans 19 economies. The euro hit a 20-year low on July 5, hitting $1.0281 per euro, the lowest against the U.S. dollar since December 2002.
Neil Jones, an analyst at Mizuho FX,toldBloomberg said Tuesday that parity with the U.S. dollar is “just a matter of time now.” Bloomberg’s option pricing model shows a 60% chance that the euro will reach parity with the U.S. dollar, Dominic Banning, head of European FX research at HSBC, told Bloomberg, “It’s hard to find anything positive to say about the EUR.” The analyst added that
The ECB is sticking to its policy of only raising 25bp in July, with little support from rising yields as it waits for September to tighten earlier when others are raising more quickly.
Pound hits 2-year low against the USD, euro expected to see increased volatility
As the ECB deals with inflation and war-related issues, the UK is also suffering. The Bank of England detailed in areportthat the economic outlook for the U.K. appears grim, with the central bank noting that British households are expected to have difficulty paying their bills. in mid-June, the British pound (GBP) faced the same problems as the euro, with the world’s oldest fiat currencyfalling below $1.20 against the U.S. dollar
The GBP has not fallen that much against the dollar in the two years since March 2020. Analysts expect the euro to see more volatility between the U.S. dollar and fiat currencies like the Swiss franc.” “Given the U.S. holiday, the FX market has not returned to full liquidity,” concluded a Mizuho FX analyst on Wednesday.” Trading of any size is likely to have a significant impact on market activity.”
What are your thoughts on the euro approaching parity with the US dollar? Do you think it will reach parity in the near future? Let us know what you think on this subject in the comments section below.
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