The differences in the monetary policy of the European Central Bank and its US counterpart, the Fed, are once again making a dent in the euro, also hit by the energy crisis. As a result the single currency has fallen below par with the dollar for a few moments on Monday.
Behind the movements, the market forecast of a new rate hike in the US to tackle inflation, at 8.5% in American territory and 8.9% on this side of the Atlantic. This Sunday another member of the Fed board pushed for a faster than expected rate hike. According to a market survey published on Monday by Reuters, the Fed will raise rates another 50 points in September, to the range of 2.75%-3%.
Thus, first thing in the morning one euro was worth 0.9994 dollars, 0.35% less than the previous day. Investors' aversion to risk leads them to take refuge in the dollar, increasing demand and making it noticeable in the exchange rate. This Friday the president of the Fed is expected to intervene in the Jackson Hole symposium, the annual meeting of central bankers, in which he could harden the tone.
Interest rates are higher in the US and this makes investments denominated in dollars more attractive. The fall of the euro below parity already occurred in July for the first time in 20 years, something that translates into an improvement in the competitiveness of exports and greater attractiveness for tourists. But it makes the energy bill more expensive in the midst of a moment of tension due to the loss of the flow of Russian gas and skyrocketing prices in international markets, where it is paid in dollars. "The value of the euro has been damaged by the energy crisis," said Chris Turner, global head of markets at ING.
Russia is expected to cut off the flow to Germany for three days at the end of the month for maintenance work on the Nord Stream 1 gas pipeline. This weekend the president of the Bundesbank, Joachim Nagel, told the German newspaper Rheinischen Post that it is " likely" that the German economy, one of the most exposed to interruptions in Russian gas supply, will suffer a recession during the winter if the energy crisis continues to deepen. In short, bad news for consumers, who may see increases in their service bills.
