Euro plunges and aims for parity with dollar after Lagarde pledges to go it alone – POLITICO

If by the US elections in November the ECB has cut rates three times, and the Fed has not done so at all, “another parity test constitutes a real danger”, he said. added.

Derek Halpenny, head of global markets research at Mitsubishi UFJ Financial Group, said the ECB had been as explicit as possible about its intention to cut rates in June and predicted “further cuts to come.” .

Halpenny said that while he was bullish on the dollar in the short term, he didn’t think the euro’s weakness would last too long. Breaking $1.05 is “actually quite rare,” he noted. In nearly a decade, a “sustained breach” has occurred only once, following Russia’s invasion of Ukraine.

A weaker euro will be a relief for exporters, particularly those in the manufacturing sector who have been hit by rising energy prices. The tourism sector is also expected to benefit, with Europe becoming a more attractive vacation destination for Americans as the dollar strengthens. But the falling currency will also increase the cost of key imports – including energy, raw materials and other semi-finished goods – creating a new wave of inflationary pressures for struggling consumers and businesses.

Halpenny stressed, however, that there were reasons for the euro to find support soon. He highlighted the “green shoots” of the recovery of the European economy, where business surveys tentatively point towards a resumption of growth after almost two years of stagnation. He noted that this, combined with a recovery in China, “will help ease negative sentiment towards global growth.”

Lagarde’s comments also had a significant, albeit belated, impact on the government’s borrowing costs on Friday. Yields on German and Italian 10-year bonds fell 0.15 percentage points, while the benchmark Euro Stoxx 50 index fell 0.5 percent.