The possibility that a US dollar and a euro will be worth exactly the same is getting closer to becoming a reality. The single currency suffered further falls this Tuesday and was trading for 1.028 dollars in the currency market, a level not seen in the last 20 years, specifically since December 2002. Investors believe that the weakness of the latest economic data will push the European Central Bank (ECB) to go slower in raising interest rates for fear of triggering a recession. Slower rate hikes would mean a devaluation of the euro against the dollar, given that the Federal Reserve is conducting a much more aggressive policy to contain inflation.
The trend is clear. The euro has lost 9% so far this year and 13% in the last 12 months. And no one is assuming that the correction is over. Three more sessions with falls similar to Tuesday’s would be enough to reach euro-dollar parity. And many analysts predict that it is inevitable. “The evolution of interest rates in the US against the euro zone will continue to attract capital flows to the dollar zone,” says Ignacio de la Torre, chief economist at Arcano Partners. This is because the Federal Reserve is making the price of money more expensive at a faster rate, making higher yields possible and turning the dollar into a safe haven in times of uncertainty.
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