The euro dropped below parity against the dollar on Wednesday for the first time in almost two decades, due to the bleak outlook for the European economy and the potential for a complete cutoff of Russian gas supplies.
Around 12.45 GMT, the euro was trading against the dollar at 0.9998, setting a record since the start of trade in the European currency. This development came after official US inflation data for June confirmed expectations that the US Federal Reserve will adopt a stricter monetary policy.
“Gas rationing, stagflation, an expected recession, they are all good reasons to be bearish on the euro,” said Stuart Cole, a head macroeconomist at Equiti Capital in London before the euro crossed that threshold.
He adds that these factors will make it harder for the European Central Bank to hike interest rates, further widening the interest-rate differential with the United States.
