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Euro US Dollar (EUR/USD) Exchange Rate Breaks Parity as Bets on Fed Action Intensify

Euro and US Dollar bank notes and coins.

Euro US Dollar (EUR/USD) Exchange Rate Breaks Below Parity amid Recession Fears

The Euro US Dollar (EUR/USD) exchange rate fell below parity today for the first time since 2002. The exchange rate is continuing to consolidate its losses amid fears of a recession in the Eurozone. The US Dollar (USD) has also reached further highs today amid expectations for a drastic rate hike from the Federal Reserve.

At time of writing the EUR/USD exchange rate is at around $1.0004, which is down roughly -0.3% from this morning’s opening figures.

US Dollar (USD) Soars amid Predictions of Bumper Fed Rate Hike

The US Dollar (USD) is making significant gains against its rivals today. The safe-haven ‘Greenback’ is benefitting from a risk-off market mood amid global recession fears.

Rising Covid-19 case numbers in China and the war in Ukraine have led to concerns of a global economic slowdown.

Expectations for a bumper rate hike from the Fed are also likely propelling USD higher. Inflation figures for June printed hotter than expected, with the rate of inflation climbing to 9.1%. Markets have now started pricing in a 1% interest rate hike for the central bank’s meeting on 27 July.

An above-forecast rise to producer prices in June today also likely increased bets on USD. Rising costs for energy products were thought to be a key factor in the change.

Euro (EUR) Drops as EC Slashes Growth Forecasts

The Euro (EUR) is being pulled lower today amid concerns that the Eurozone could soon see an energy supply crisis. The Nord Stream 1 gas pipeline, a crucial supply line, is currently closed for maintenance and analysts fear Russia could leave supplies shut off.

An immediate supply cut-off is likely to harm Germany, the trading bloc’s largest member, most severely. Economists have predicted that such a loss of supply cause a 12.7% loss to the country’s economy.

A poor outlook for the Eurozone economy may also be weighing on the single currency today. The European Commission (EC) announced fresh forecasts for the trading bloc, with growth cut to 2.6% and inflation revised up to 7.6% for 2022.

In a statement realised alongside the new forecasts, the EC said:

‘As the reality of a protracted Russian invasion of Ukraine sinks in, the assessment of its economic consequences for the global economy is turning grimmer. The shocks unleashed by the war are hitting the EU economy both directly and indirectly, setting it on a path of lower growth and higher inflation.’

EUR/USD Exchange Rate Forecast: Will Retail Sales Print Above-Forecast?

Looking ahead for the Euro, May’s balance of trade figures for the Eurozone could help to prevent further losses on Friday if the trade deficit narrows as forecast.

Fears over a potential energy crisis in Europe could continue to weigh on the single currency. EUR is likely to see some movement if there are any further developments concerning the Nord Stream 1 gas pipeline.

For the US Dollar, a predicted rise to June’s retail sales could push the currency even higher. The forecast uptick of 0.8% would represent a significant recovery for the sector. Fed Governor Waller has also hinted that above-forecast retail sales could push the central bank closer to a 1% rate hike. Also on Friday, a forecast downturn to consumer sentiment could limit any potential gains for USD.