FXTM information and reviews
FXTM
95%
OctaFX information and reviews
OctaFX
94%
XM information and reviews
XM
93%
FXCC information and reviews
FXCC
92%
Libertex information and reviews
Libertex
91%
FxPro information and reviews
FxPro
90%

Euro closes below USD for first time since 2002


2 September 2022 Written by Tom Tragett  Lead Writer and Analyst at Libertex Group Tom Tragett

It wasn't too long ago that we wrote about EUR/USD reaching parity for the first time in two decades. Well, now the Fibre has hit another new low, recording its first daily close below 1:1 since 2002. In recent trading, the cross rate fell from a high of 1.0046 to a low of 0.9926 and is down by some 1% on the day ahead of the much-anticipated Jackson Hole Economic Symposium.

To make matters worse, many forex strategists believe this is just the beginning of a long bear market for the EU single currency and that we ought to prepare for further declines in the months ahead. So, what's behind the euro's terrible performance of late, and what are the implications for investors, traders and ordinary consumers?

Inflation, inflation, inflation

While it's true that the entire world is under inflationary pressure at present, no region has been harder hit than Europe. According to Eurostat, nearly half of the 19 countries in the eurozone have now reached double-digit annual inflation. The reasons for this are many, but chief among them is the lack of wriggle room the ECB left itself in terms of interest rates. 

Having been near or below zero for the best part of the last decade, the European regulator was simply unable to react as hawkishly as the Fed and other world central banks when post-pandemic price pressure began to bite.

Local political instability and associated energy uncertainty have also played a significant role in rising prices. With electricity and other fuel sources up an average of 50%, there has been an unavoidable knock-on effect on manufacturing costs and, consequently, the price of finished goods.

The cash is always greener…

Another undeniable factor behind the Fibre's recent dip below parity is the extreme strength of the US dollar. Although the Federal Reserve does deserve some credit for its ambitious and timely rate hike programme, the source of the greenback's strength goes much deeper than monetary policy. Whatever anybody says, the US dollar is still the world's reserve currency, and, as such, it's considered a safe harbour during times of economic uncertainty.

Higher Treasury bond yields as a result of Fed rate increases obviously contribute to the dollar's attractiveness. Not to mention the fact that oil and many other currently highly valued commodities are denominated in US dollars.

It's important to note, however, that a strong dollar is not especially desirable for Washington as it makes US exports more expensive. As many Fed representatives head into Jackson Hole calling for another 0.75-basis point hike in September, the possibility of American gas heating European homes this winter seems remote, to say the least.

So, where are we headed?

As Europe edges ever closer to recession and with the US not far behind, it's hard to predict where the EUR/USD will end up in the short- to medium-term. And some might well argue that it's the least of our worries. It's easy to forget that rising US interest rates don't just strengthen the dollar; they also mean higher mortgage payments for ordinary borrowers and reduced consumer spending. This is another important factor that is leading ECB policy makers to take a more tentative approach to Eurozone interest rates.

With a majority of Fed officials clearly dead set on continued hawkish policy, the Fibre is likely to continue on its downtrend in the coming months, though much will depend equally on the actions of both the European regulator and its US counterpart, as well as the external geopolitical and economic context in the region. Following Powell's Jackson Hole address this Wednesday, all eyes will now be on the European Central Bank as it prepares to release the minutes of its previous meeting on Thursday, 25 August.

Trade EUR/USD CFDs with Libertex

Wherever you think the world's major pairs will move in the short term, you always have the opportunity to take your choice with Libertex. Because Libertex offers both long and short CFD positions in the globe's biggest cross rates — including EUR/USD, GBP/USD and USD/JPY — you're sure to find a pair interesting for trading. 

#source

Share:


Related

Penny Stocks: What Are They?
Penny Stocks: What Are They?

Locating penny stocks with buy ratings is getting more and more challenging. The markets become less adventurous as interest rates rise. That indicates that penny stocks, which are riskier by definition...

20 Sep 2022

Bitcoin and Ethereum: Inflation Brought Down The Prices
Bitcoin and Ethereum: Inflation Brought Down The Prices

Strong inflation brought down the price of bitcoin yesterday from $22,800 to the $20,000 support level. This morning, the price of Ethereum formed a new seven-day low at the $1550 level...

15 Sep 2022

Cooler USD & Stocks Higher Ahead of CPI
Cooler USD & Stocks Higher Ahead of CPI

USDIndex – Slips (108.00 tested) for a 5th straight day, lifting EUR & GBP. Fed Funds Futures back to 90% chance of 75 bp (third consecutive) hike...

14 Sep 2022

Copper’s Price: What’s happening?
Copper’s Price: What’s happening?

In this article, we will discuss what has happened to the price of copper. When your money loses some of its purchasing power, you stop caring about supply and demand...

14 Sep 2022

The Inflation Monster Strikes. Better One Small Fish Than An Empty Dish
The Inflation Monster Strikes. Better One Small Fish Than An Empty Dish

London Mayor Sadiq Khan says that millions of Britons won’t be able to afford heating or basic food this winter if things remain as they are now. The present state of affairs has no precedents in the past...

9 Sep 2022

After a recent selloff, Wall Street is expected to rise
After a recent selloff, Wall Street is expected to rise

Expectations that the Federal Reserve might lower interest rates to combat inflation. This idea did not have a chance because of the labor market data. Investors are concerned...

7 Sep 2022


Editors' Picks

HFM information and reviews
HFM
89%
IronFX information and reviews
IronFX
88%
FXCM information and reviews
FXCM
87%
NordFX information and reviews
NordFX
85%
Vantage information and reviews
Vantage
84%
FP Markets information and reviews
FP Markets
81%

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.