LONDON, July 17 (AFP): The euro's plunge against the dollar, triggered by the Ukraine war and mounting risks to the EU economy, has driven the two currencies to parity for the first time in two decades.
The European single currency sank to $0.9952 on Thursday -- a level not seen since the end of 2002, the year it was officially introduced.
But traders believe the euro could recover, provided it clears several hurdles in the coming months.
The first to get over is to avoid the risk of a halt in Russian gas supplies to Europe, which would cause electricity prices to soar and force eurozone countries to limit some industrial activity.
"If gas flows from Russia normalise, or at least stop falling, following the end of the Nord Stream 1 maintenance shut-down next week, this should somewhat decrease market fears of an imminent gas crisis in Europe," Esther Reichelt, an analyst at Commerzbank, told AFP.
With Russian gas giant Gazprom having warned it cannot guarantee that the pipeline will function properly, European countries fear that Moscow will use a technical reason to permanently halt deliveries and put pressure on them.
French President Emmanuel Macron even said on Thursday that Russia was using energy "as a weapon of war".
If Nord Stream 1 "doesn't turn back on, the euro falls as the economic shock waves will be felt worldwide as the European energy crisis could very well trigger a recession," warned Stephen Innes, an analyst at SPI Asset Management.
"Recession would inevitably mean that the market becomes even more concerned about fragmentation risks in the eurozone," added Jane Foley, a foreign exchange specialist at Rabobank.
Like other central banks, the European Central Bank (ECB) is seeking to avoid stifling the economy by raising rates too sharply.
But it also has to worry about a possible fragmentation of the debt market, with large differences in borrowing rates across the eurozone.
The ECB has so far maintained an ultra-loose monetary policy to support the economy, while the US Federal Reserve has instead raised rates and promises to continue to do so to counter inflation.
It will announce its monetary policy decision on Thursday, and has indicated that it will raise rates for the first time in 11 years.
