The dollar and euro are on the verge of parity for the first time in 20 years — and it could happen within a month. Here's what to know.
dollarand euroare on the verge of being equal for the first time since 2002.
- A top economist told Insider that parity could be reached within "a month or so."
The euro recently sank to a five-year low against the dollar, raising expectations that the world's two most traded currencies could soon reach parity for the first time since 2002.
On Tuesday, the euro exchange rate with the dollar was hovering around $1.05, down about 7.3% year to date and nearly 14% below year-ago levels. Last week, the euro approached its 2017 low of $1.034 before rebounding a bit this week.
Barring unforeseen circumstances, euro-dollar parity could happen within "a month or so," according to Aleksandar Tomic, economist and associate dean at Boston College.
"[Parity] is an indicator of lack of faith in the euro area economy going forward, which is not surprising," he told Insider.
The euro launched in 1999 and traded below the dollar in the early years. But the euro rallied and eventually soared to a peak of roughly $1.58 in March 2008.
Easy-money policies from the
That's lifted the dollar against the euro as well as the world's other top currencies. The dollar index, which measures the greenback against a basket of currencies, is up 7.76% year to date and 14.7% from a year ago.
Russia's war on Ukraine as well as broader market turmoil have also sent investors flocking to the safe haven of the dollar. Analysts at both HSBC and RBC Capital
And hedge funds are predicting the same. In the past month, firms have poured $7 billion in notional value into bets on parity, Bloomberg reported, and it's become the most popular wager in the options market.
Euro vs. dollar: economic outlook
As a result, the
"We are facing lower growth or probably a recession in the eurozone," he told the Financial Times last week, predicting dollar-euro parity will come within six months.
While the war has created bleak economic prospects for Europe, it has had a far lesser impact on the US economy, Tomic pointed out.
That means the Fed is in a better position than the ECB to combat inflation. Expectations that
"There's nothing deep about dollar-euro parity, but it's an indicator of the scale of global turmoil," Tomic said.
- Indian markets open lower amid unrest in China over zero-Covid: Paytm, Adani Transmission, Hero MotoCorp in focus
- Canada to strengthen visa processing capacity in Delhi and Chandigarh
- Dharmaj Crop Guard IPO – 10 things to know before subscribing
- Revenge spending effect: Household savings dip to 5 -year low
- With no signs yet of inflation cooling, experts predict more rate hikes