Euro falls below parity

European shares fell on Wednesday as higher-than-expected US inflation data raised bets about more aggressive Federal Reserve policy action, and also put pressure on the European Central Bank after the euro tumbled to parity with
the dollar.

The pan-European Stoxx 600 index ended 1% lower after data showed US consumer prices surged 9.1% last month, the largest annual increase in more than four decades amid stubbornly high costs for gasoline, food and rent.

Automobiles, construction and materials were the biggest European sectoral losers, down 2.3% and 1.8%, respectively.

While a 75-basis-point interest rate hike by the Fed this month was more or less priced in, the data supported expectations of even bigger increases.

As the US currency rallied, the euro fell below $1 per dollar for the first time in almost two decades, putting the ECB in a bind. The central bank is expected to raise interest rates next week for the first time since 2011 to combat inflation running at a record high of 8.6%.

Currency weakness exacerbates the inflation problem and rapid interest rate rises could add to pressures on the euro zone economy already facing a possible recession, looming gas shortages and sky-high energy costs that are depleting purchasing power.

“We think Europe has a higher risk of getting into recession than the US,” said BNP Paribas Head of Equity and Derivatives Strategy, Europe, Ankit Gheedia.

Published in The Express Tribune, July 14^th, 2022.

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