The euro has fallen to a 20-year low against the US dollar, parity is about to fall

The Euro has a slow start to the second half of 2022, with the fiat currency falling to a 20-year low against the US dollar. The decline adds to fears that the global economy is in recession, and analysts believe that the risk to the parity is now only a matter of time.

The euro is approaching parity with the US dollar

European Central Bank (ECB) policymakers are dealing with record inflation but have been much slower than the US to raise the benchmark interest rate. On June 27-29, ECB members met at the European Central Bank's annual forum, and ECB President Christine Lagarde said: "Monetary policy is in a difficult situation."

During the meeting at the forum, she also mentioned that the first rate hike in the European Union (EU) this year will take place in July, with an increase of a quarter of a percentage point. She also noted that a rate hike is likely to occur in September as well, and it will be a larger increase than in July. Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said:

"In hindsight, I think a lot of board members would like to raise rates as early as June, but it's a very difficult situation because you know we're headed for a slowdown."

Inflation and the problems associated with the war in Ukraine have thrown the EU into financial chaos. Europe's dismal economy has also put considerable pressure on the euro, the region's sovereign fiat currency, which has effect in 19 economies. The euro hit a 20-year low on July 5, 2022, reaching $1.0281 per euro, the lowest against the US dollar since December 2002.

Mizuho FX analyst Neil Jones told Bloomberg on Tuesday that parity with the US dollar is "now just a matter of time." Dominic Bunning, head of European FX research at HSBC, told Bloomberg it was "hard to find much positive to say about the euro".

With the ECB holding its line and only seeing a 25 basis point hike in July – at a time when others are climbing much faster – and waiting for September to bring faster tightening, there is also little support coming from high-yield bonds .

In addition to the ECB dealing with inflation and war-related problems, Great Britain is also suffering. The Bank of England detailed in the report that the economic outlook appears bleak and central banks expect British households to struggle to make payments. In mid-June, the British pound (GBP) faced the same problems as the euro because dropped below $1.20 against the US dollar, the lowest in two years from March 2020.

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