Current recession risks rising from Russian gas flow uncertainty are weighing on the euro. It is trading at parity vs USD. The risk of the euro falling sharply below parity cannot be ruled out, according to economists at ANZ Bank.

Growth risks are skewed to the downside

“If worst-case fears over gas supplies eventuate, the risk of a sharp move below parity cannot be ruled out.”

“Energy uncertainty is complicating the ECB’s planned monetary normalisation. Growth risks are skewed to the downside as winter approaches, and higher energy costs are driving inflation to record highs (HICP 8.6% YoY).” 

“Uncertainty is fostering a hesitant approach at the ECB, which is in sharp contrast to the Fed’s hawkishness. Differing policy guidance and reaction functions are driving a policy wedge between the US and the EU and contributing to euro weakness.”