US dollar worth more than euro for first time in two decades

Growing recession concerns pummel Europe's single currency

The euro has lost more than 10 per cent so far this year against a surging dollar. AP

The euro dropped below parity against the dollar the first time in almost two decades on Wednesday, as a hawkish US Federal Reserve and growing concern about recession risks in the euro area continued to batter the single currency.

“The inevitable has finally happened, with the euro breaking beneath parity with the greenback for the first time in two decades,” Michael Brown, head of market intelligence at Caxton in London, told Reuters.

The euro started this year on a strong note given a post-pandemic economic recovery. But the war between Russia and Ukraine, surging European gas prices and fears that Moscow could cut off supplies completely have hurt the single currency by raising the spectre of recession.

At 1245 GMT, one euro was at $0.998, down 0.4 per cent on the day to its lowest level since December 2002. It later retraced slightly to $1.004.

While a weaker euro should technically be good news for export-orientated companies, the plunge adds to headwinds for European stock investors already grappling with slowing economic growth, soaring inflation and a spiralling energy crisis.

The benchmark Stoxx Europe 600 Index just wrapped up its worst first-half plunge since 2008 and strategists have warned of more declines ahead.

The single currency has lost more than 10 per cent so far this year versus a surging dollar, and the drop below parity came after US inflation data.

“Parity is largely symbolic, but at the current juncture, a very weak euro is not helpful for inflation,” Dirk Schumacher, the head of European Macro Research at Natixis in Frankfurt, told Reuters.

“It also shows that Fed is more important for the exchange rate rather than the ECB at the moment,” Mr Schumacher said, adding that while the European Central Bank should not target the exchange rate explicitly, it should be paying more attention to it given the inflationary backdrop.

The ECB is scheduled to meet after the Federal Reserve later this month and it is expected to deliver its first rate increase in more than 10 years.