After coming close to being equal to the dollar, the euro takes a break.
Tuesday, the euro got back some of its earlier losses, which had brought it close to being worth the same as the U.S. dollar.
At around $1.005 on Tuesday, the euro was up 0.12 percent. As the euro zone’s energy supply crisis and economic problems continue to hurt the common currency, the euro had dropped to as low as $1.0001.
In recent weeks, fears of a recession have grown as uncertainty about the bloc’s energy supply has grown. Russia has threatened to cut gas flows to Germany and the rest of the continent even more.
On Monday, Russia stopped sending gas through the Nord Stream 1 pipeline while they did their annual summer maintenance work. The pipeline carries about 55 billion cubic meters of gas per year from Russia to Germany across the Baltic Sea. It is Europe’s largest piece of infrastructure for bringing in gas.
The planned 10-day stoppage of gas flows has made people worry that supplies will be cut off for good, which could throw off the region’s plans for getting enough gas for the winter and make a gas crisis worse.
Jeremy Stretch, head of G-10 FX strategy at CIBC Capital Market, said on CNBC’s “Street Signs Europe” on Tuesday, “It is a key and obvious psychological level that is very much under threat here.”
Stretch said that the idea that the euro could fall below this level shows how worried people are about a recession in the euro zone.
The ECB is in a “very, very hard spot.”
There is also doubt about whether the European Central Bank will be able to tighten monetary policy enough to bring down record-high inflation without making the economy hurt even more. This is because of the possibility of a sharper economic slowdown.
“The ECB is in a really, really tough spot. You could say that the ECB was late to the party when it came to stopping bond purchases and thinking about tightening monetary policy,” Stretch said.
He also said that the ECB “clearly missed a trick” at its last meeting, but that inflation expectations for the medium term had moved back toward the central bank’s target threshold.
“That’s one sign that, over the medium to long term, inflation expectations might not be getting too far off track,” Stretch said. “But from the ECB’s policy signaling point of view, it’s clear that they need to act quickly.”
Graham Secker, Morgan Stanley’s chief European equity strategist, said that the weak euro could be good for European companies as they prepare to report earnings for the second quarter.
“Twelve months ago, the euro was above $1.20, and now we’re obviously very close to parity, so that’s a pretty big tailwind for earnings right now,” Secker told CNBC’s “Street Signs Europe.” “But I see that as a positive offset to some of the other negative factors that are building up,” he added.
“Right now, we think that the earnings season for the second quarter will probably end up with a net beat,” he said.