Euro slips back below parity with dollar

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Euro Slips Back Below Parity With Dollar Euro Slips Back Below Parity With Dollar
Uncertainty over Russian gas flows saw the euro slip back below parity against the dollar. Photo: Dan Kitwood/Getty
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By Samuel Indyk, Reuters

The euro slipped back below parity against the dollar on Wednesday and was on track for its third consecutive monthly drop as a burgeoning energy crisis adds to recession fears, while the European Central Bank pushes ahead with rate hikes.

On Wednesday, Russia halted gas supplies from the Nord Stream 1 pipeline, intensifying an economic battle between Moscow and Brussels and raising the prospects of a recession and energy rationing in some of the world's richest countries.

Fears that gas flows through the pipeline will not resume after the planned maintenance comes to an end on Saturday have kept traders on edge.

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"The narrative that has helped the euro at the start of the week, which is an improvement in the gas story, is fading now which we think will put a cap on euro-dollar," said ING currency strategist Francesco Pesole.

"We'll know in the next few days whether the resumption of flows at the end of the maintenance period will go smoothly or not."

The uncertainty saw the euro slip back below parity against the dollar. It was last down 0.4 per cent at $0.9976.

Meanwhile, inflation in the euro zone rose to another record in August, beating expectations and solidifying the case for further big European Central Bank (ECB) rate hikes.

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A growing number of ECB officials have been calling for oversized rate hikes to combat surging inflation, which could exceed 10 per cent in the coming months.

Money markets are fully pricing in a 50 basis point rate hike from the ECB, with a greater than 60 per cent chance of a larger 75 basis point hike, according to Refinitiv data.

The dollar index, which measures the greenback against a basket of six currencies, was last up 0.3 per cent at 109.10, within a whisker of Monday's two-decade peak of 109.48.

The index is on track for its third consecutive month of gains, having risen over 3 per cent in August.

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