The euro fell below par against the dollar for the first time in nearly two decades, as an upbeat US Federal Reserve and growing concern about the risks of a looming recession in the euro area continued to affect the single currency. The euro started the year on a strong note in view of the economic recovery after the pandemic. But conflicts between Russia and Ukraine, rising European gas prices and fears that Moscow may cut supplies altogether, have hurt the single currency, raising the risk of a recession.
Francesco Pesol, FX Strategist, ING Bank, London
“It’s a big psychological level, a unique moment of the big Dollar might. But I would not say that it is a big force majeure that has left the market stunned.
“There is a possibility that once parity is reached, the market may begin to offload some dollar positions. However, the overall macro story is very dollar-positive and very euro-negative. The trade shock terms suggest that parity is also does not take immediately euro Deep in the devaluation zone.
“It will be harder for the ECB to intervene. What it can do is be more drastic with verbal intervention, but when the fear of a recession impacts the outlook, there is only so much they can do and surprise markets.” The surprising side is not easy. The story of the global recession is driving the markets and the euro area more dangerous than others.”
Peter McCallum, Rate Strategist, Mizuho, London
“I think the market is more concerned about the demand side rather than the FX angle, but that means net ECB needs to do more, but the growth outlook is also weakening as the euro is weakening. Net net which should be deflationary rather than inflationary.”
“I think (ECB) will say similar things. I don’t think they want to react too much because it may send the wrong kind of signals. I think there will be parallel BOJ that doesn’t necessarily want to change policy What’s happening there. I wouldn’t expect much change in tone.”
“I think FX is being driven more from a growth perspective and that’s probably driving inflation expectations higher than weak FX.”
Dirk Schumacher, Head of European Macro Research at Natixis, Frankfurt
“The parity is largely symbolic, but at the moment, a very weak euro is not supportive of inflation.”
“It also shows that the Fed is more important to the exchange rate than the ECB at this point in time,” adding that the ECB should not explicitly target the exchange rate, giving them more attention given the inflationary backdrop. needed.
Neil Jones, Head of FX Sales at Mizuho, London
“Selling the euro against the dollar is sending alarm bells to the forex market around the world.”
“The euro is running low through parity on hopes that the interest rate differential between the ECB and the Fed is set to remain and the energy supply crisis is too high.”
“The energy crisis (is) not going away any time soon, especially for the likes of Germany.”
“I expect the price to continue to decline and we will print $97.5 in the near term.”
“This move is likely to continue through parity in the euro-dollar.”
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