For a few minutes yesterday, the dollar and the euro were trading at parity. This is the first time in about twenty years that the dollar has been equal to the Euro. It is also a very worrying sign for investors who looked at it as a sign that a looming recession is set to hit Europe.
The first time the Euro was ever on price parity with the dollar was in December 1999. For the next three years surrounding the September 2001 plane attack, the dollar traded higher than the Euro.
During the advent of the tech bubble, investors around the world thought of the dollar as a safe haven to hold investments and assets but after 2003, the Euro reclaimed its strength above the dollar until sometime yesterday.
Investors have been increasingly worried about a looming recession since the turn of the year. Some of them are convinced that the recession is already here too. Russia’s invasion of Ukraine, New lockdowns in China following the discovery of new COVID variants, skyrocketing interest rates, and rising inflation are some of the reasons that have fuelled the speculations of recession.
Whenever there is economic uncertainty, many investors choose to convert their holdings and assets to the dollar because they believe in the safety of the currency. The dollar’s value has risen exponentially because of concerns over Europe’s economy.
Energy crisis because Russia is slowly cutting off the fuel supply to Europe is also a major factor here as well as the European Central Bank’s failure to raise inflation checks like interest rates. All these are causing investors to ditch their Euros to save in Dollars causing a spike in the value of the dollar.
The current parity between the Dollar and Euro is synonymous with a 1:1 ratio between the two currencies. This ratio is more of a psychological threshold for investors. This is because the Euro has not hit exact price parity with the Dollar but there were moments on Monday between 4:19 to 5:45 AM, US Eastern time that the Dollar went for 0.99 Euros which is essentially parity.
This will likely be the case over the next few days as the dollar will trade slightly lower or higher than the Euro. Barring any surprises, it’s very much unlikely to swing any further than that.
Featured image source: fortune.com
