Martin Leissl | Bloomberg | Getty Images The euro traded close to parity with the US dollar on Tuesday as the euro zone’s energy supply crisis and economic woes continue to weigh on the common currency. The euro traded 0.2 percent lower at around $1.002 in morning deals in London, paring earlier losses that had pushed the single currency to the edge of parity with the dollar. Fears of a recession have risen in recent weeks amid growing uncertainty over the bloc’s energy supplies, with Russia threatening to further cut gas flows to Germany and the wider continent. Russia temporarily suspended natural gas deliveries through the Nord Stream 1 pipeline on Monday for annual summer maintenance. The pipeline is Europe’s single largest piece of natural gas import infrastructure, transporting around 55 billion cubic meters of natural gas annually from Russia to Germany via the Baltic Sea. The planned 10-day suspension of natural gas flows has sparked fears of a permanent supply disruption, potentially derailing the region’s winter supply preparations and exacerbating a gas crisis. “It’s a key and obvious psychological level that’s very much under threat here,” Jeremy Stretch, chief G-10 FX strategist at CIBC Capital Market, told CNBC’s “Street Signs Europe” on Tuesday. Stretch said the prospect of the euro falling below that level was a reflection of growing recession fears across the eurozone.
ECB in ‘very, very difficult position’
The prospect of a sharper economic slowdown has also called into question whether the European Central Bank will be able to tighten monetary policy aggressively enough to rein in record inflation without deepening economic pain. “The ECB is in a very, very difficult position. You could argue that the ECB has been rather late to the party, both in terms of ending their bond purchases and potentially tightening monetary policy,” Stretch said. He added that while the ECB “clearly missed a trick” at its last meeting, medium-term inflation expectations had eased towards the central bank’s target range. “This is a sign that perhaps in the medium to longer term these inflation expectations are not necessarily materially disappearing, but clearly from an ECB policy signaling perspective … the need to act and act quickly is clear,” Stretch said. Graham Secker, chief European equity strategist at Morgan Stanley, said the euro’s weakness could give European companies a boost ahead of the upcoming second-quarter earnings season. “Twelve months ago, the euro was above $1.20 and now we’re obviously very close to parity, so there’s quite a significant drop in earnings at the moment, but I see that as a positive offset against some of the other negatives that are being created ». Secker said on CNBC’s “Street Signs Europe.” “Right now, we expect the second-quarter earnings season will likely end on a clean slate,” he added.
