As the euro moved ever closer toward parity on Tuesday, one big Wall Street bank warned that investors may be underestimating the firepower of the bloc’s central bank.
Pressure resumed on the common currency EURUSD, -0.05% that touched as low as $1.0001 to bring its losses so far this week to 1.7%. The currency was last changing hands at $1.0056. Last Friday’s strong U.S. jobs data that all but cemented another Federal Reserve three-quarters of a percentage point rate hike has been driving up the dollar, weighing on rival currencies, notably the euro.
The U.S. ICE Dollar Index DXY, 0.17% was up 0.3% to 108.41 trading at fresh 2002 highs. The dollar index is up around 3.5% this month so far, against a 4.4% drop for the euro.
Weighing on the common currency has been a bet by traders and investors that the European Central Bank won’t be able to stop the high inflation or recession that looms, complicated by Russia’s war on Ukraine that has driven commodity prices higher. Fears that Russia will cut off natural gas to the region also are weighing on the euro.
“Historically, a 1 percentage point decline in euro-area growth expectations tends to lead to a 2% fall in EUR/USD. That would be roughly consistent with our economists’ recent growth downgrade, along with the market putting some weight on a more severe recession,” Goldman Sachs analysts Michael Cahill and Isabella Rosenberg, told clients in a note on Monday.
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