On Monday, the euro was flirting with parity against the US dollar, as the single biggest pipeline that carries gas from Russia to Germany began its annual maintenance. This would mean that the supply would be shut off for 10 days.
However, investors are worried that the Russian war in Ukraine could see the shutdown extended, which would further limit the gas supply in Europe. This could potentially drive the already-struggling economy of the eurozone into recession.
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Market analysts said that it was interesting to note that Friday’s market bounce was now being reversed. They added that there was a strong possibility of parity being tested, as there are two big US reports that could turn out to be another catalyst. This was in reference to the retail sales and inflation data.
The euro had last fallen by 0.5% against the US dollar to $1.0105, which was because of the broad gains in the greenback, as investors were gripped with risk aversion. On Friday, the single currency had declined to reach the brink of parity at a value of $1.0072. This was after the US payroll jobs data turned out to be better-than-expected.
However, the currency managed to bounce back higher. According to analysts, a rally in the euro would only be seen if there is an improvement in the European economic outlook and if the possibility of aggressive interest rate hikes in the US comes down.
Analysts said that the euro was likely heading towards the $0.95 value this month because it was unlikely to see an improvement in gas supplies and central banks were also exhibiting absolutely no signs of cutting back on their tightening cycles.
As far as the US dollar is concerned, the currency managed to rise to a high of 24 years against the Japanese yen, after the country’s ruling coalition performed strongly in the election. This essentially means that there is unlikely to be a change in the country’s monetary policy.
In morning trading, the US dollar had reached 137.28, which is the strongest it has been since 1998. The dollar was last higher by 0.7% against the yen at 136.07. The case for aggressive hikes in the interest rates by the Fed would be strengthened if the US inflation numbers turn out to be hot. This is likely to give the dollar yet another boost.
Another major economic event scheduled for this week is the release of GDP data for China in the second quarter, which is due for release on Friday. Investors are keeping an eye on the impact of the COVID-19 lockdowns on the economy. There was a 0.3% decline in the offshore yuan against the US dollar.
The US dollar’s rise also affected other markets, such as that of precious metals, with gold coming down. As far as cryptocurrencies are concerned, the digital currencies were on the back foot and the leading crypto, bitcoin, was trading near the $20,000 level.
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