EUR/USD slumps below parity amid European energy crisis

Philip McHugh August 23rd 2022 - 2 minute read

The euro came under selling pressure on Monday, leading the single currency to strike parity with the US dollar for the second time in in a little over a month.

Meanwhile, the pound is trading sideways this morning, with GBP/EUR flat at €1.1847 and GBP/USD muted at $1.1758. GBP/CAD has dipped to C$1.5321, while GBP/AUD and GBP/NZD hold steady at AU$1.7113 and NZ$1.9046, respectively.

Looking ahead, will another contraction in Eurozone private sector growth solidify the EUR/USD exchange rate’s drop to parity?

What’s been happening?

The euro stumbled out of the gate this week, with the EUR/USD exchange rate hitting parity yesterday amid fresh concerns over a looming energy crisis in Europe and fears it could tip the Eurozone into a recession.

This came as the news that Russia’s Gazprom would shutdown the Nord Stream 1 pipeline for unscheduled maintenance triggered a dramatic spike in European gas prices.

The pound also struggled on Monday amid fears the strikes at the Felixstowe container port could place more strain on UK supply chains and further disrupt the UK economy.

These losses were reinforced by warnings that UK inflation could climb as high as 18% and place significant pressure on UK households.

The US dollar, meanwhile, strengthened yesterday as market jitters and Federal Reserve rate hike bets underpinned the safe-haven currency.

What’s coming up?

In the spotlight today we have the publication of the Eurozone’s latest PMI releases.

Following a shock slump in private sector activity in July, EUR investors are likely to pay close attention to August’s preliminary releases to see if this downtrend continued.

Expect to see the euro tumble if the contraction in private sector growth widened this month.

The UK will release its own preliminary PMIs this morning. While UK private sector growth is forecast to have been more robust than in the Eurozone, the pound could still come under pressure if there is any moderation of activity.

At the same time, while the ISM PMIs are seen as more influential, August’s S&P US PMIs could still determine the direction of the US dollar this afternoon. Will another slump in activity drag on USD exchange rates?

Written by
Philip McHugh

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