The euro falls below the dollar again due to fear of recession in the European Union | Economie

Euro bills.Antonio Pronic (Reuters)

The resurgence of recession fears in the Eurozone has once again put pressure on the single currency. On Monday morning, the euro fell below the dollar again, after losing parity with the dollar last July for the first time in twenty years. Yes, that was for a very short period of time. Investors fear that rising energy prices in Europe will jeopardize business activity in the region and thus weaken the market on the Old Continent. On the other hand, the dollar continues to strengthen in anticipation of the Federal Reserve’s meeting to be held this Thursday in Jackson Hole, where it will give clues about its monetary policy roadmap to curb inflation. The European currency has fallen 12% against the dollar so far this year.

Bad news in Europe also came with gas prices, which rose dramatically after Russia announced the three-day shutdown of its Nord Stream 1 gas pipeline by the end of August due to maintenance work. This channel is key to the supply of gas in Central Europe and its disruption is increasing pressure on the fuel market at an already sensitive time due to the war in Ukraine. In fact, futures contracts for September delivery in the Dutch market reached €290 per megawatt-hour. In just over a month, prices are up 213%.

Given its strong dependence on Russia for energy, the European market still looks more fragile in the eyes of stock market operators, who prefer moving their chips to US assets. “Rising energy prices are deteriorating the European economy, but not the US economy, which is currently a net energy exporter,” says Son Airto Vienola, CEO of Arex Markets. Juan Jose Fernandez Figueres, Director of Analysis at Link Securities, who – which He asserts that Russia continues to use gas as a weapon to pressure the West not to continue supporting Ukraine with weapons. “It is not known how far he wants to go. There are already companies in Europe that have stopped production because energy costs do not allow them to be profitable,” he adds..

The shock Energy matters first to GermanyAnd the One of the countries most exposed to the interruption of Russian gas supplies. The head of the Bundesbank, Joachim Nagel, warned this weekend that The country’s economy may stagnate during the winter if the energy crisis continues to fester.

The war between Russia and Ukraine continues to weigh heavily on the economic prospects of the eurozone, doomed to a possible deterioration in the medium term due to increased mistrust in business and the high indebtedness of the countries of the periphery. “Even if the inflation data eases, which we believe the euro will not be able to become a stronger currency again until some relevant events around the war occur,” says Jorge Laparta, co-founder of Quant Consultancy.

Dollar rises on Fed aggressiveness

While the euro is falling, the dollar is hitting new highs due to the possibility of maintaining the aggressive stance by the US central bank on its monetary policy. After the US labor market showed significant strength in July – the unemployment rate fell to 3.5%, the pre-pandemic level – investors were confident that the Fed would indeed start to lift its foot from the accelerator. Many were betting on a 50 basis point increase instead of the 75 in September. However, comments made by the institution’s bankers in recent days suggest that the increase in the price of money will continue to accelerate, believing that inflation is not yet fully under control, Figueres adds.

The US central bank has raised interest rates by 225 basis points since March, but the spotlight will turn to President Jerome Powell’s Friday speech at Jackson Hole, in which the Federal Reserve is expected to provide potential answers about how far US interest rates could go and for how long. They must remain at elevated levels to control inflation again.

stock market discounts

Fear of an economic slowdown is pushing stock markets back, which after benefiting from the summer recovery is already ignoring another tone extremist (more susceptible to restrictive monetary policy) by central banks. The Ibex 35 index scored 0.64% and was below 8,300 points, with IAG, ACS and BBVA among the worst hit values. Together with Britain’s Ftse, which lost 0.21%, Spanish selectivity is the best that has withstood the rain of sales that affected the markets of the Old Continent at the start of this week. Italy’s Ftse Mib and France’s Cac were down 1.64% and 1.8%, respectively, while Germany’s Dax deepened its decline to 2.33%.

Wall Street was also dyed red: At the close of European markets, the Dow Jones and S&P 500 indexes were down about 1.5% and the Nasdaq Composite by more than 2%. Hopes for a cautious turn by the Federal Reserve and strong quarterly earnings helped send the S&P 500, the benchmark for global markets, up 14% from its lows in mid-June after a tough start to the year. But the uncertainty of a hot autumn has once again rattled the nerves of investors, who are concerned about rising prices and central banks maneuvering to please them.

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