Dollar Surpasses Euro: Euro-Dollar Parity Reached for the First Time in 20 Years
The relentless strengthening of the US dollar globally has continued to push the Euro downwards, culminating in the Euro-Dollar exchange rate hitting 1.0000. This marks the first time the Euro has reached parity with the dollar in twenty years, a situation last seen in December 2002. The Euro-Dollar parity signifies that one dollar is now equivalent in value to one Euro. As of 12:29 PM, the EUR/USD parity rate was hovering around 1.0004, reflecting a 0.35% decrease.
This significant depreciation of the Euro is partly attributed to expectations that the European Central Bank (ECB) may adopt a more cautious approach to interest rate hikes compared to the US Federal Reserve. The ECB is anticipated to implement its first interest rate increase in 11 years at its upcoming July meeting. The ECB’s policy rate decision for July is scheduled to be announced on July 21st at 15:15 Turkish time.
Europe Faces Higher Recession Risks Than the US
Economic indicators suggest that Europe is facing a greater risk of recession compared to the United States. A primary factor contributing to this deteriorating economic outlook in Europe is the ongoing Russia-Ukraine war. The conflict has triggered a sharp surge in energy prices, disproportionately impacting the European Union economies.
Dollar Strengthens Across Global Markets
The US dollar continues to gain value against all major currencies. As investors seek safe-haven assets amidst global economic uncertainty, the dollar has become increasingly attractive. The Dollar Index, which measures the dollar’s strength against six major currencies including the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc, has climbed to 108.50, reaching a 20-year peak.
A key driver behind the dollar’s global appreciation is the declining risk appetite among investors. The resurgence of Covid-19 cases in China, and the subsequent implementation of strict pandemic control measures, have spurred investors to move away from riskier assets and flock towards safe havens like the US dollar. This risk aversion has also led to declines in global stock market indices.
Markets Await US Inflation Data
Global markets are now keenly focused on the upcoming release of the US inflation figures for June, scheduled for release at 15:30 Turkish time tomorrow. Market expectations anticipate that the annual US inflation rate will reach 9%, potentially setting a new 41-year high. Given that US inflation data significantly influences the Federal Reserve’s (Fed) tightening monetary policy decisions, the upcoming inflation report is expected to be a crucial factor in determining market direction.
The Federal Open Market Committee (FOMC), which sets the Fed’s monetary policy, is scheduled to convene on July 26-27. Current market pricing indicates that a 75 basis point interest rate hike is widely expected from the Fed at this meeting.