Euro dives even lower as economic winter looms

The euro staggered closer to parity against the dollar yesterday as one analyst said ‘winter is coming’ to the continent’s economy.

Europe’s single currency fell to as little as $1.0145 against the greenback, a fresh 20-year low.

It is nearly 11 per cent down against the dollar so far this year as fears that Russia will strangle gas supplies stoke recession expectations.

‘The eurozone economy is showing resilience, but winter is coming,’ economists at Pantheon Macroeconomics said in a note.

‘The war in Ukraine arrived as virus restrictions were fading, triggering huge uncertainty just as we hoped the economy was about to stretch its legs.’

The note said there was now clear evidence that soaring inflation – which hit a record 8.6 per cent in June – was sapping spending power in the economy.

Carsten Brzeski, head of global macro at ING Bank, said the impact of worker shortages disrupting flights and trains and inflation is choking off new investments and industrial orders.

‘The long-awaited recovery of the eurozone has been cancelled,’ he said.

The warning comes at a time when the US currency has been strengthened by a series of sharp interest rate rises by the Federal Reserve, while the European Central Bank has been reticent to take similar action.

Dirk Schumacher, head of European macro research at Natixis CIB, said: ‘The euro’s weakness reinforces the notion that the ECB is behind the curve.’