- The dollar and the euro are on the brink of a one-to-one equivalence for the first time since 2002.
- On Monday, the euro exchange rate with the dollar was at $1.009, down about 15% in the last 12 months.
- The latest catalyst was fear that the eurozone would enter recession if Russia's Nord Stream 1 pipeline doesn't resume gas deliveries.
The world's two most traded currencies are less than one penny away from reaching parity for the first time since 2002.
On Monday, the euro exchange rate was down 0.9% to $1.009. And over the last 12 months, the euro has fallen 15% against the dollar.
Compared to the European Central Bank, the Federal Reserve has been hiking interest rates at an aggressive pace, pushing yields on US Treasury Bonds higher than those on European bonds and sending investors flocking to the dollar.
Meanwhile, Russia's invasion of Ukraine and subsequent Western sanctions on Moscow have sparked an energy crisis, worsening sky-high inflation. On Monday, Russia cut off parts of Europe's natural gas supply via the Nord Stream 1 pipeline to conduct maintenance for 10 days.
Russia had already slashed gas shipments through the pipeline by 60%, which has left Europe bracing for a permanent shutdown. Officials across Europe have warned a total gas cutoff could trigger a recession.
The euro could fall to $0.90 against the dollar if Russia cuts off its oil from Europe, a portfolio manager told Bloomberg last week.
Kaspar Hense, senior portfolio manager at BlueBay Asset Management, said he sees the euro declining if Europe starts rationing energy which will also trigger a recession, though he noted such a scenario was not his base case.
The euro launched in 1999, then traded below the dollar in 2002. Eventually, it rallied and hit a peak of roughly $1.58 in March 2008.