What’s next for the euro after the fall against the dollar?

London: The euroThe fall against the dollar, the Ukraine war and rising risks to the EU economy, has led the two currencies to parity for the first time in two decades.
The European single currency fell to $0.9952 on Thursday – a level not seen since late 2002, the year it was officially introduced.
But traders believe that the euro could improve, provided it clears several hurdles in the coming months.
Europe is the first to end to avoid the risk of a Russian gas supply interruption, which will drive up electricity prices and force eurozone countries to limit some industrial activity.
“If the gas flow from Russia returns to normal, or at least stops falling, then nord stream Esther Reichelt, an analyst at Commerzbank, told AFP: “With the 1st maintenance shutdown next week, this will somewhat ease the market’s fears of an impending gas crisis in Europe.”
Russian gas giant Gazprom has warned it cannot guarantee the pipeline will work properly, with European countries fearing Moscow will use a technical reason to permanently halt deliveries and pressure them .
President of France Emmanuel Macron It even said on Thursday that Russia was using energy “as a weapon of war”.
Stephen Innes, an analyst at SPI Asset Management, warned that if Nord Stream 1 “does not return, the euro falls as economic shocks will be felt around the world as the European energy crisis could very well trigger a recession.” ”
“Recession will inevitably mean that the market becomes even more concerned about fragmentation risks in the eurozone,” it added. Jane FoleyA forex specialist at Rabobank.
Like other central banks, the European Central Bank (ECB) is trying to avoid stifling the economy by raising rates too rapidly.
But it also has to worry about the potential fragmentation of the debt market, with large differences in lending rates across the eurozone.
The ECB has so far maintained an ultra-lax monetary policy to support the economy, while the US Federal Reserve has instead raised rates and has promised to continue to do so to combat inflation.
It will announce its monetary policy decision on Thursday, and has indicated it will raise rates for the first time in 11 years.
“If the ECB aims to boost the euro, it will need to see a 50-bp hike in July and/or signal that a 75-bp move is on the cards,” S&P analysts said in a note.
“Rapid policy adjustments now will help lower inflation expectations, further reducing the risk of requiring a restrictive policy stance,” he said.
for economists berenburgThe euro’s decline is mostly due to the strengthening of the dollar, which has “appreciated strongly against a broad basket of currencies since mid-2021”.
The dollar has benefited from the tightening of the Fed’s monetary policy as it tries to limit inflation, which again hit a record high in June.
“Markets are speculating that the Fed may raise the rate by 100bp instead of 75bp at its next meeting on July 27,” Bernberg said.
“If so, it could further strengthen the dollar.”
UniCredit said: “At the end of the year, prospects for a fall in inflation and an over-balanced message from central banks as a cyclical peak of official rates should support a return to risk appetite and dampen demand for the dollar.” should.”
Should this happen, the euro could move away from parity in the last few months of 2022, he says.

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