Trading currencies: what the experts think
Euro-parity, a nasty cocktail and the pound’s ‘doom loop’

Euro-parity?
Prepare for a big shake-up in the currency stakes, said Alice Gledhill on Bloomberg. For the first time in two decades, the euro “is on the verge of US dollar parity”. The EU’s common currency hit a five-year low of near $1.03 last week – “buckling from a rush into the greenback as a haven from market turmoil”. And plenty of analysts predict the two currencies will hit parity in 2022. “Hedge funds are already betting on it”: they’ve piled $7bn into “options wagers on parity” in the past month alone.
Nasty cocktail
Although the euro’s plight is largely “a function of dollar strength” – which has been “supercharged” as the US Fed presses on with big interest-rate hikes – the “darkening outlook for the European economy” doesn’t help. Not everyone is negative. Roberto Mialich of UniCredit expects the euro to climb back above $1.10 next year as the Fed’s hiking cycle tails off. But that looks a long shot. The European Central Bank “is walking a tightrope”, said Alice Gledhill, attempting to balance the need “to tame record inflation” against “the economic damage that could cause” – especially in the bloc’s most indebted member states, such as Italy. “We find it hard to see a silver lining for the single currency at this stage,” noted HSBC, pointing to downward revisions to growth forecasts and upward revisions for inflation. “This is a nasty cocktail for any currency to try to digest.”
The pound’s ‘doom loop’
We know all about that in Britain, said Liam Halligan in The Sunday Telegraph. The pound has lost a tenth of its value against the dollar this year, as the cost-of-living crisis has escalated. It is “now close to the psychologically important $1.20 benchmark”. Could it also be heading for dollar parity? Given the speed of the recent falls, it can’t be ruled out. “Sterling is now at risk of falling into ‘a doom loop’ – in which a lower pound results in more expensive imports, adding to upward price pressure. The resulting rise in inflation then pushes the pound down even more, creating a downward spiral.” The Bank of England claims it can’t do much about the global energy and food prices. “But if decisive rate rises help prevent sterling’s fall, they would help hugely in efforts to rein in rampant inflation.”
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Scientists are the latest 'refugees'
In the spotlight Brain drain to brain gain
-
5 dreamy books to dive into this July
The Week Recommends A 'politically charged' collection of essays, historical fiction goes sci-fi and more
-
6 sleek homes for modernists
Feature Featuring a concrete-and-steel home in South Carolina and a renovated 19th-century former carriage house in Pennsylvania
-
Warner Bros. kicks cable to the curb
Feature Warner Bros. Discovery is splitting into two companies as the cable industry continues to decline
-
Mortgages: The future of Fannie and Freddie
Feature Donald Trump wants to privatize two major mortgage companies, which could make mortgages more expensive
-
Pocket change: The demise of the penny
Feature The penny is being phased out as the Treasury plans to halt production by 2026
-
The UK-US trade deal: what was agreed?
In Depth Keir Starmer's calm handling of Donald Trump paid off, but deal remains more of a 'damage limitation exercise' than 'an unbridled triumph'
-
Shaky starts: A jobs drought for new grads
Feature The job market is growing, but Gen Z grads are struggling to find work
-
Work life: Caution settles on the job market
Feature The era of job-hopping for bigger raises is coming to an end as workers face shrinking salaries and fewer opportunities to move up
-
Saving the post office
Feature The U.S. Postal Service is facing mounting losses and growing calls for privatization. Can it survive?
-
Safe harbor: Gold rises as stocks sink
feature It's a golden age for goldbugs