Published on 01.09.2022 11:04

The Euro is once again back above parity against the US dollar as we enter today’s European trading session but very few analysts expect the situation to las due to the number of economic woes surrounding the Eurozone and another dip below the $1.00 mark looks imminent.

Even growing expectations that the European Central Bank (ECB) might hike interest rates next week by a whopping 75 basis points is unlikely to garner much interest in the shared currency as the ECB benchmark interest rate would still be well below that of the US Federal Reserve.

“I see a chance that the euro might find some support in case of a 75 bps rate step next week. However, the ECB still has some convincing to do in its comments to ensure its credibility with the markets, proving that it will also tolerate economic pain to effectively deal with price risks. Only at that point would the euro be able to benefit from the ECB’s monetary policy in a more sustainable manner.” said economists at Commerzbank.

The looming recession predicted for the Eurozone is also expected to keep the Euro under pressure and has been exasperated  by the planned three-day halt of natural gas supplies to Europe by Russian energy company Gazprom via the Nord Stream 1 pipeline which was set to kick off on Wednesday.

Earlier in the week German economy minister Robert Habeck said the country faces the "bitter reality" that Russia will not restore gas supplies to Germany and that 3 days will turn into a permanent fixture which will leave much of Europe struggling to heat their homes this winter and only hasten the pace at which the Eurozone falls into a recession.

Looking further ahead today, the main drivers of the EUR/USD currency pair will be the release of retail sales figures from Germany and during the American session market participants will await the initial jobless claims figures from the US. This is usually a strong guide of what to expect from the all-important non farm payrolls release tomorrow which is always a big market mover.