If you take a look, you'll see that 1 is $1.
With a war on the eurozone's border, an uncertain energy supply from Russia and a growing risk of recession, the pressures on the euro became so strong that on Wednesday it dipped to parity with the U.S. dollar.
It has not been seen since December 2002. The pleasing round number is important to investors.
Analysts at the Dutch bank ING said in a note to clients that 1.00 is the biggest psychological level in foreign exchange markets.
The euro's drop against the dollar is even more remarkable. The euro has fallen more than 10 percent this year due to the dollar's strength.
The euro has fallen as the dollar has strengthened against almost every major currency in the world.
When investors think that a currency will grow in value, they can buy it, and when they think it will decline, they can sell it. Buying U.S. government bonds or Apple stock requires getting dollars first and lots of global trade takes place in dollars. In times of economic distress, people looking for a safe place to put their money buy more dollars, at the expense of other currencies.
The euro was introduced in 1999 with the goal of bringing unity, prosperity and stability to the continent. This unity depended on the euro.
The euro is the same strength as people's belief in it. When investors fled from the debt of heavily indebted nations, there was a fight about fiscal policy. The currency was threatened by the crisis but faith has been restored. Next year, the eurozone will have 20 members.
A number of factors have been mounting against the euro and in favor of the U.S. dollar in recent months.
I'm worried about the outlook. With persistently high inflation, rising consumer prices and declining spending, the American economy is showing signs of slowing down. There are other measures that signal trouble.
The consumer is confident. In June, the University of Michigan's survey of consumer sentiment hit its lowest level in its 70 year history, with nearly half of respondents saying inflation is hurting their standard of living.
There is a housing market. Construction of new homes is slowing. As interest rates rise and real estate companies lay off employees, these trends could continue.
There is a substance called copper. A commodity seen by analysts as a measure of sentiment about the global economy because of its widespread use in buildings, cars and other products is down more than 20 percent since January.
There is oil Because of supply constraints caused by Russia's invasion of Ukraine, crude prices are up this year, but they have recently started to fall as investors worry about growth.
The bond market is a place to buy and sell bonds. Long-term interest rates in government bonds have fallen below short-term rates. It shows that bond investors think the economy is going to slow down.
Supply chains have been disrupted around the world. The prices of essential commodities have gone up since Russia invaded in February. That has resulted in the highest inflation rates in a long time.
Even as the global economic outlook gets worse, central bankers in the United States and Europe are trying to bring down inflation. The risk of recession has been made worse by restrictions on Chinese production because of Covid-19 rules, while efforts to wean Europe from Russian energy are proving difficult. The dollar has been strengthened while the euro has not.
The outlook for the dollar is very supportive according to the global head of foreign-exchange analysis at Citi.
Concerns have been raised that the eurozone would fall into recession.
The euro fell to its lowest level in 20 years last week due to uncertainty about the future of Europe's energy supply and concerns that Russia would permanently shut down a critical natural-gas line to Germany.
The bets on parity began to accumulate a long time ago. Jordan Rochester, a strategist at the Japanese bank, had been betting on the euro reaching parity with the dollar. Similar predictions were made at several banks.
There was a brief reprieve in the euro's slide. The president of the European Central Bank, Christine Lagarde, laid out a plan to raise interest rates for the first time in more than a decade in July and signaled that the eight-year era of negative interest rates would be over by early fall. When rates increase again in September, policymakers say it will be even bigger than in July.
It wasn't enough to change the currency's trajectory. Analysts at HSBC wrote in a note to clients that it was hard to find much positive to say about the euro. The news about the economy is difficult.
The euro is expected to reach parity with the dollar by the end of the month, according to Mr. Rochester. It happened more quickly.
Mr. Rochester said it was human psychology. He said that parity is not a market-based reason. The beginning of a period similar to the currency's early years could be marked by it.
Before the euro existed in the form of bank notes and coins, the low exchange rate undermined confidence in the new currency. The European Central Bank tried to help it.
There are less questions about the euro's resilience today as progress is made in forming the union. Ten years ago, the central bank was committed to preserving the currency.
The weaker currency will make it more difficult for the European Central Bank to keep inflation in check. The forces pushing up the dollar will make it difficult for central bankers to arrest the currency's decline with words.
With inflation in the United States near its highest rate in four decades, the Federal Reserve has increased its monetary policy with interest rate increases. At a conference in June, Powell said he expected the Fed's benchmark rate to reach 3.5 percent this year. The risk of the central bank going too far in raising rates to cool the U.S. economy was higher than the risk of inflation staying high, he said.
Mr. Powell and Ms. Lagarde sat next to each other. She did not match his commitment and clarity on how high interest rates could rise in the eurozone. The year ends at the end of the year.
The growing risk of a recession in the eurozone has investors questioning how high the bank can raise rates before it has to.
The E.C.B. will not be able to keep up with the Fed's determination in pushing rates up.
The European Central Bank needs to keep an eye on the bond market. Concerns have been raised about the impact of rising interest rates on the bloc's most indebted members.
In Italy, for example, borrowing costs rose sharply in June, and officials are trying to discern how much of that was a reflection of the risk of Italy's financial situation and what was so-called fragmentation, or rapidly diverging interest rates between eurozone members. A new policy tool is being prepared by the bank to deal with that.
The eurozone and its central bank will be tested over the next year.
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