The U.S. dollar strengthened on Monday, causing the euro to fall into parity against the greenback.
The dollar rose 0.8 percent against the euro and reached 109.2. At the same time, the euro fell by 1.1 percent to 0.9928.
It was the dollar’s strongest position in five weeks, while the euro experienced a parity against the U.S. currency for the second time in the last two decades.
The last time it happened was in mid-July when the dollar reached a two-decade high of 109.29, while the euro fell to its lowest position within the same timeframe.
The situation happened as investors avoided riskier assets amid the fear of interest rate hikes by the U.S. and European governments.
However, unlike the euro, the U.S. currency has received support as the Federal Reserve promised to implement an “aggressive” monetary regulation before Fed’s symposium at Jackson Hole, Wyoming, this week.
Last week, Fed president for Richmond, Thomas Barkin, said that federal officials aimed to impose faster front-loaded interest rate hikes.
Michael Brown of London’s Caxton told reporters that the statement was a “reality check” that took some risks “off the table”.
"With investors now clearly expecting a relatively hawkish message from Fed Chair (Jerome) Powell at Jackson Hole on Friday,” Brown said.
“It's a perfect cocktail of risk-aversion and a hawkish Fed for the greenback to bound higher, especially when growth worries, especially in Europe, continue to mount.”
On the other hand, the euro’s fall followed an announcement by Russia’s Gazprom of a three-day halt of gas supply through the Nord Stream 1 pipeline at the end of August. This pipeline regularly supplies gas to western Europe. The announcement increased fear of an energy crisis that contributed to the euro’s instability in the past few months.
According to Germany's Bundesbank president Joachim Nagel, the European Central Bank (ECB) should hike interest rates since inflation will remain high throughout the year.
Brown explained that 0.9950 was the “pivotal level” for the euro as it was the previous low point for the currency. If the value drops below that point, the euro may see “significant further losses”. The situation will worsen if the ECB does not tighten monetary regulation in the region quickly.
Other currencies falling
Other currencies also dropped on Monday, including China’s Renminbi yuan, which saw its lowest point in almost two years. The U.S. dollar was 0.54 percent stronger than the yuan at 6.869.
Yuan’s drop followed the Chinese central bank’s move to lower mortgage reference and benchmark lending rates by a significant margin. It was an effort to revive the country's economy following the re-emergence of COVID-19 cases and a property crisis plaguing the country.
The British pound sterling also saw its lowest point against the dollar since mid-July on Monday as it was down by 0.64 percent at 1.17565.
The drop took place following an increase in energy costs and a labor crisis across the country. This situation brought forward the UK’s high cost of living and fear of a prolonged economic slowdown.
The crypto market was also affected by the current economic situation. Bitcoin was 2.52 percent lower at $20,972 on Monday.