The euro fell to within one cent of the US dollar as the deepening energy crisis and broader economic fears took their toll

  • Inflation in the Eurozone is at a record level
  • Forecasters expect a recession amid concerns that Russia may cut off gas supplies
  • In Germany, Europe’s largest economy, energy rationing begins
  • The euro hit its lowest level since 2002 at $1.0073

The euro fell to within one cent of the US dollar as the deepening energy crisis and broader economic fears took their toll.

Inflation in the euro zone is at record levels and forecasters are expecting a recession this year amid fears that Russia could cut off gas supplies.

In Germany, Europe’s largest economy, energy rationing begins. The euro hit $1.0073, its lowest level since 2002, before clawing back some losses.

Sterling also fell to $1.20 to the dollar. Both the euro and the pound have fallen about 11 percent against the U.S. currency this year as recession and inflation fears send investors fleeing to the apparent safety of the dollar.

The prospect of a sharper interest rate hike by the US Federal Reserve remains solid as official data showed the US added 372,000 jobs in June.

In contrast, the European Central Bank held back on raising interest rates despite concerns about spiraling prices.

Jessica Hinds, senior economist for Europe at Capital Economics, said the contrasting approaches of the two central banks could push the euro lower against the dollar.

Germany, particularly dependent on Russian gas, rationed heating and hot water, dimmed street lights and closed swimming pools. It seems that the crisis will deepen. On Monday, the Nord Stream 1 gas pipeline, which transports gas from Russia to Germany, will be closed for ten days for maintenance.

Julian Jessup, a research fellow at the Institute of Economic Affairs, said Germany had become “the real sick man of Europe”.

Carsten Brzeski, head of global macro at ING Bank, said he “largely” agreed, adding: “The war in Ukraine is the latest factor to completely undermine the German economic business model, which is based on three dependencies: cheap foreign energy , industry and export.

“These three pillars are subject to a complete overhaul. In the short term, this will be costly and lead to a loss of economic prosperity.”

Germany has been one of the worst performing economies in Europe in recent years. Official figures show that since the Brexit vote six years ago, France and the UK have grown the most, followed by Spain, then Germany and then Italy.

Experts at Oxford Economics said fears of a recession had “increased significantly”. “Countries more dependent on Russian gas could experience much greater shocks,” they said, potentially undermining 2% growth in Germany and Italy.

Gerard Lyons, chief economic strategist at Netwealth and a former adviser to Boris Johnson, said: “There are significant challenges on the continent right now, and bigger ones are brewing.”

In Greece yesterday, the inflation rate was recorded at 12.1 percent, the highest in 30 years. In Italy, Economy Minister Daniele Franco said growth was likely to be strong in the second quarter, but it could slow or stop.

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