Eur/usd: For the first time since mid-September, the euro rises above parity with the dollar

(BFM Bourse) – The single currency rose above parity with the dollar on Wednesday for the first time since mid-September. The euro benefiting from a depreciation of the greenback and the prospect of a rate hike by the European Central Bank. A temporary reduction in concerns about energy would also explain this movement.

The euro regains color against the greenback. The single currency rose above parity against the dollar on Wednesday for the first time since mid-September, taking advantage of a bout of weakness in the greenback and a possible new tightening of the ECB.

The pound, for its part, continued to recover, the new Prime Minister, Rishi Sunak, reassuring the markets after the debacle of the short-lived government of Liz Truss, which had sent the British currency to an all-time low.

A temporary reduction in energy concerns

The euro gained 0.43% to 1.0005 dollars around 3 p.m., benefiting from “a temporary reduction in concerns about energy and expectations of a rate hike next year in Europe after the new sharp contraction in economic indicators. “PMI activity” published on Monday, explains Guillaume Dejean, of Western Union.

According to this index serving as a barometer of the economy, the decline in economic activity in the euro zone accelerated sharply in October in the private sector, heightening fears of a recession.

Investors are therefore expecting the European Central Bank (ECB) to hit hard by raising its interest rates again by 0.75 points, which should support the single currency. The European Monetary Institute had already raised its key rates twice since the summer, by 0.50 points in July and 0.75 points in September.

And while the euro zone is “unlikely to avoid a recession”, the mild weather and “significant drop in energy prices, especially gas, could bring some relief” in the short term, says Thu Lan Nguyen, of Commerzbank.

The analyst however warns: “it is still too early to hope for a lasting turnaround” concerning the energy crisis in Europe which has eroded the purchasing power of consumers in recent months.

A decline in the dollar after degraded statistics in the United States

The euro also largely benefited from the decline of the dollar, after a series of unfavorable economic indicators. The greenback “fell to its lowest level in three weeks on signs of a slowing economy in the United States and expectations of a less drastic hike from” the Federal Reserve, comments Victoria Scholar, analyst at Interactive Investor.

Consumer confidence, for example, deteriorated more than expected in the United States in October, according to the Conference Board index published on Tuesday, due to persistent inflation and the prospect of a recession.

The dollar could suffer from a less aggressive than expected rate hike by the Federal Reserve (Fed). “But nothing official indicates for the moment a possible softening of the tone of the Fed”, moderates Ipek Ozkardeskaya, analyst at Swissquote.

A renewed form of the pound sterling

The pound sterling also benefited for the moment from the weakness of the dollar, and returned to a level more seen since mid-September against the greenback, before the disastrous “mini-budget” of the former Prime Minister of Liz Truss. These measures had caused the currency to plunge to its historic low. The pound took 0.78% to 1.1561 dollars, after rising to 1.1620 dollars.

The British currency had started the week on a positive note, then soared on Tuesday, gaining almost 2% against the dollar, surfing on both the decline of the greenback and the inauguration of new British Prime Minister Rishi Sunak, well received by investors.

“There is no doubt that the arrival of Rishi Sunak as Prime Minister has helped to allay fears of reckless fiscal policy,” said Neil Wilson of Markets.com.

(With AFP)

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