The super dollar heralds the arrival of crisis in Europe, a crisis that will soon be felt across the ocean.
The fiat euro/dollar pair is at record lows
Il Sole 24 Ore in a recent article explains how the Euro-Dollar exchange rate (which as of today is at 1.026) is close to parity and complicit in the markets’ cyclical situation and skyrocketing inflation that shows no signs of stopping. This means only one thing, recession.
This is echoed by Bloomberg, which explains how the support of 1.03 already reached in the winter months of 2015 and the early months of 2016 had never been broken through, and to go back to that value one has to go back to 2002, when it was the euro that appreciated against the American currency.
The fear is of a major slowdown in growth and the arrival of the much-feared recession. The sentiment is that this will come in both the old continent and the US, but with different timing and intensity.
Never before in the last two decades has there been such a shift in rates among the world’s major currencies, and this will bring consequences.
Europe is suffering the most from the energy crisis. The supply problem is much more acute than in the United States of America because the main supplier is basically out of the picture due to the same sanctions imposed by the West.
The important symmetry lies in hyperinflation, which in America has been countered more vigorously by the Fed, having applied a very aggressive monetary policy with rate hikes (the next one scheduled at the end of July) of 75 basis points at a time, calming the situation while being far from a solution.
Inflation affects Europe in a more impactful way, which although taking countermeasures, does not see a strong move like that of Powell.
How is Europe reacting in the face of such economic conditions
Lagarde sees herself engaged on two fronts: on the one hand, the energy crisis that sees a severe shortage of gas and hydrocarbons as compensation from Arab countries comes to a halt, and on the other hand, the fight against the CPI.
The prospective scenario leads analysts to think that the coming recession will have different timing and intensity and will hit Europe with greater force.
The common feeling is that all countries, both the better-positioned ones, such as Germany and the Netherlands, and the PIIGS (Portugal, Italy, Ireland, Greece and Spain) will suffer. The shock wave will be something never seen before, and there are fears for the survival of the continent’s fiat currency, which could be saved by a common European debt according to some insiders.
The positions of many traders in these two days have gone short and have preferred to sell often at a loss in view of a repositioning and just the behavior of the Euro-Dollar exchange rate regaining in favor of the latter its dominance as a safe haven asset.
Right now gold is not fulfilling its historic position as a safe haven asset by standing at $1760 after breaking support at $1,800. The euro is in full meltdown and a common currency among the Brics countries is far from being established.
Bitcoin which is the other candidate as a safe haven asset seems to be struggling and has been lateralizing between $18,000 and $20,000 for the past few weeks.
The Euro-Dollar exchange rate puts the US currency as the real safe-haven asset and forces everyone to reposition, or at least a change of strategy over the long term, something unthinkable until only a month ago.