The euro plummeted on Tuesday, approaching parity with the dollar for the first time in two decades, driven down by the prospect of a recession caused by an oil shortage and an ECB rate-hike campaign that lags well behind that of the Fed.

The dollar index, which compares the greenback to six other currencies, was up 0.3 percent at 108.45. It had previously risen to 108.47, its highest since October 2002.

The euro has taken the brunt of the dollar’s gains, plunging as low as $1.00005, its lowest since December 2002, a level some experts have seen as a test of parity.

The euro was on the verge of a crash when the ZEW economic research group reported that German investor mood dropped to -53.8 points in July from -28.0 in June.

The Nord Stream 1 pipeline, which transports Russian gas to Germany, started yearly maintenance on Monday, with flows anticipated to halt for 10 days. However, governments and markets are concerned that Russia may prolong the blockade, deepening the energy crisis and driving the country into recession. 

According to analysts, the poor economy raises concerns about the European Central Bank’s intention to hike interest rates by 25 basis points in July, followed by 50 basis points in September.

Euro weakness has contributed significantly to the dollar index’s rise, but the US currency is also backed by concerns about global development, with China, in particular, pursuing rigorous zero-COVID rules to control new breakouts. 

Source: Reuters

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