Euro is on track to slump to parity against dollar within weeks, according to leading investment bank
Warning: ECB’s Christine Lagarde
The euro is on track to slump to parity against the dollar within weeks, according to a leading investment bank.
The humiliating milestone would be the latest blow to the credibility of Europe’s single currency.
The European Central Bank has controversially kept interest rates below zero, making euros less attractive as central banks in the UK and US hiked rates to combat runaway inflation.
Investors are also spooked by the rising risk of recession in the eurozone itself.
Last week, ECB president Christine Lagarde warned inflation pressures were ‘broadening and intensifying’ with no sign of an end to soaring energy and commodity prices after Russia’s invasion of Ukraine.
Just over a year ago, a euro bought $1.22. Now analysts at Nomura expect it to be worth no more than a dollar by the end of next month.
It hit new lows of $1.04 on Friday. But it could sink even further given the high dependence of Germany – Europe’s largest economy – on Russian energy and trade.
Analysts fear that Vladimir Putin may use the planned maintenance shutdown of the vital NordStream 1 pipeline in mid-July to turn off gas supplies to Germany altogether.
‘If Russia cuts off gas supplies to Germany it could be the biggest economic hit in modern history outside of Covid-19 and the global financial crisis,’ said Nomura strategist Jordan Rochester. The Bundesbank reckons this would wipe up to 5 per cent, or £175billion, off the size of the German economy.
Another growing risk is a repeat of the eurozone crisis of a decade ago when economically ailing countries such as Greece needed to be bailed out.
The ECB plans to start lifting interest rates – currently minus 0.5 per cent – above zero later this month for the first time since 2011.
The pound has hovered between €1.15 and €1.20 in the last year.