Euro takes fresh run toward parity after U.S. inflation hits 41 year high

Stronger-than-expected U.S. inflation provided the nudge to push the euro back toward parity against the dollar on Wednesday.

The euro
was last changing hands at $1.0019, hitting a session low of $1.0001, where it seemed to be finding support, according to FactSet.

But Bloomberg reported that the euro indeed fell through parity for the first time since 2002, shortly after data showed U.S. June consumer prices rose a stronger-than-expected 9.1%, pressured by higher gas prices.

Some noted similar action on Tuesday, when the common currency also appeared to briefly dip into parity then bounce back.

Read: Euro pauses at parity. But what comes next?

The euro has been moving closer to 1 against the dollar amid growing investor concerns that Russia will cut off gas to Europe, triggering possibly shortages and rationing and a deep recession. A downturn is already on the cards thanks to lingering COVID-19 fallout and high commodity prices driven by Russia’s February invasion of Ukraine.

While the European Central Bank has vowed an interest-rate increase at next week’s meeting, investors are worried that the bloc’s struggling economies can’t withstand too much, therefore tying the hands of officials.

Interest rate hikes traditionally boost the strength of that central bank’s home currency.

The Federal Reserve, in the view of some, has a stronger case for hiking rates as the economy is less burdened by fallout from a war on Europe’s soil, therefore investors have been gravitating toward the dollar. The ICE Dollar Index
was last up 0.2% to 108.30, in a week that has seen it gain 3.4%.

Last week’s strong jobs data and now Wednesday’s record inflation number will only cement further the case for U.S. interest rate hikes, say some. That’s as data out earlier confirmed a four-decade high for French inflation and a near-four-decade high for Spanish consumer prices.

Read: Fed funds futures traders now see 42% chance of full percentage point Fed rate increase on July 27 after June CPI data

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