May 16, 2022 - Economy

Euro plummets toward parity with U.S. dollar

Data: FactSet; Chart: Axios Visuals

The euro is dropping fast against the dollar, an indication that markets see growing risks that Russia could curtail natural gas flows to the continent, hammering economic growth.

Driving the news: European benchmark natural gas prices spiked in the last week, on increased chatter that Russia would restrict gas flows, in what would be a crippling blow to Europe's economy.

The big picture: Currency movements are driven, to a large extent, by what central banks are expected to do with interest rates. Hikes tend to strengthen a currency, while cuts weaken it.

The bottom line: The euro's drop against the greenback suggests investors think the Fed will follow through on its plans for aggressive rate hikes this year, because the U.S. economy will remain strong, and inflation high.

  • And despite statements from European Central Bank officials that the hiking cycle will start in July, the markets don't think Europe's economy will be strong enough for rates to rise much — perhaps because Russia will cut off energy supplies.

The silver lining: If Americans can afford the airfare (that's a big if), Europe might be a relatively affordable vacation spot this year.

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