Euro to maintain parity with the US dollar for a while

A major Wall Street bank has stated that the euro is likely to remain at par with the US dollar for some time, if gas prices are not significantly lower.

According to Goldman Sachs the eurozone’s 19 member countries will see their currencies fall to $0.94.

The Euro closed last Wednesday with a slight under parity with the Dollar.

Goldman however predicted in a note he sent to clients this weekend that the currency would remain the same for years if gasoline prices rise above their historical lows.

“The deteriorating balance of the eurozone is a direct result of the deterioration of terms of trade with higher prices of energy products, and this will have important consequences for the euro if they continue,” said the Wall Street giant.

The Russian invasion in Ukraine has shaken international markets, driving up commodity costs.

Due to their dependence on Moscow’s energy supplies, high gas prices have put pressure upon the economies of Germany & Italy.

Compare the EUR/USD exchange rate to last year

Their commercial centers have suffered as a result of the high energy prices in Europe. Germany has gone from a decade-long trade surplus into a deficit.

Trade deficits increase the supply of a country’s currency on international financial markets, which in turn weakens it against its rivals.

Goldman also noted that the sharp interest rate increases by the US Federal Reserve have supported dollar by increasing the attractiveness US assets.

“If the looming recession pushes [European Central Bank] To take a more cautious approach, we expect, even when the Fed aims to raise the final interest rate “the euro may continue to collapse,” the company said.

Since March, the Fed has increased borrowing costs by 375 basis points The rate hike cycle is much faster than the ECB’s 200 basis points.