Parity beckons euro even as ECB speeds up rate hikes


EUR/USD    chart in 1 day intervals

The euro is returning to dollar parity, and according to traders and market strategists, even the accelerated pace of rate hikes by the European Central Bank cannot change this.

Energy security remains a big concern in Europe, so a return to parity is more likely than a rise to $1.04, said Francesco Pesole, FX strategist at ING. In addition, the difference in interest rates between Europe and the US continues to indicate the weakness of the euro.

“The ECB tightening cycle is so small compared to the Fed,” Pesole said. “This is not to say that this could lead to a strengthening of the euro at a time when the eurozone risks running out of gas this winter.”

On Friday, the euro weakened 0.9% to $1.0138. Last week it bounced off parity for the first time in 20 years.

The ECB raised its base rate by 50 basis points on Thursday, more than many traders expected. Against this backdrop, traders are also watching political turmoil in Italy as the country approaches early elections and whether Russian gas supplies will return to normal.

The ECB interest rate decision „reduces the speed/magnitude of the euro’s decline, but is unlikely to change the trajectory,” said Eric Nelson, strategist at Wells Fargo FX.

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