Euro a whisker from dollar parity; Heathrow caps passenger numbers amid travel disruption – as it happened

After a dramatic day in the FX market, here’s a round-up of today’s main stories

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The euro’s weakness is also a story of US dollar strength, points out our economics editor Larry Elliott.

Investors traditionally flock to the US currency in times of uncertainty and there are plenty of reasons – war, inflation and the prospect of fresh measures in China to combat the Omicron variant of Covid-19 – for them to be jittery.

Economic factors are also pushing the dollar higher. The US is further down the road to economic recovery after the easing of Covid-19 restrictions than the eurozone, plus the country’s central bank, the Federal Reserve, has been quicker to start raising interest rates in response to rising inflation.

Here’s his analysis:

Oil has continued to slide, with Brent crude dropping below the $100 per barrel mark (as it also did last week, for the first time since April).

The head of the body representing global airlines has hit out at new restrictions at London’s Heathrow on Tuesday, Reuters reports.

Willie Walsh, director general of the International Air Transport Association and a former head of British Airways, said the airport underestimated the speed of the pandemic recovery and was focused on profit at the expense of airlines that must now foot the bill.

Walsh also panned moves to tell airlines to limit the number of seats they sell to limit summer disruption.

After its narrow escape this morning, traders are pondering how long the euro can avoid dollar parity.

Simon Harvey, head of FX at Monex Europe, says:

“The market is playing cat and mouse with euro parity at the moment in the absence of any major macro drivers,” said

Harvey added that Wednesday’s U.S. inflation data -- expected to rise to a new four-decade high of 8.8% for June -- could prove the catalyst.

“We may have to wait for U.S. CPI...or a clearer picture for European energy markets once planned maintenance in Nord Stream comes close to finalising for euro-dollar to break the threshold”

In New York, the benchmark stock indices have opened cautiously as investors fretted about the health of the global economy

The Dow Jones Industrial Average fell 60.53 points, or 0.19%, at the open to 31,113 points.

The S&P 500 dipped by 0.06%, while the tech-focused Nasdaq Composite has gained 0.4%.

German Conservative MEP, Markus Ferber is urging the European Central Bank to do more to fight inflation.

Ferber blames the euro’s weakness on the ECB’s loose monetary policy (interest rates are still at record lows). He argues the single currency would recovery “astonishingly quickly” if the central bank got tougher.

Ferber, the co-ordinator for the European People’s Party on the European Parliament’s Economic and Monetary Affairs Committee (ECON), says:

The Euro’s tumble against the Dollar is directly attributable to the ECB’s monetary policy approach. While Central Banks in other developed economies have gone all in to fight inflation, Christine Lagarde has sat on her hands for the past couple of months.

If Lagarde had shown the same commitment as her peers in the US, we would not be witnessing this disaster. The poor exchange rate with the dollar is a big contributor to imported inflation.

As flagged earlier, the ECB is expected to raise rates this month for the first time in a decade.

Having come within the narrowest hair’s breadth of hitting parity to the dollar this morning, the euro is now hovering around $1.0042 in afternoon trading.

That still leaves the single currency at its lowest levels in 20 years, having sunk to just $1.0001 earlier.

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Investors continue to fret that Europe is sliding towards recession, especially if Russia were to suppress gas supplies through Germany after this month’s annual maintenance on the Nord Stream 1 pipeline ends.

Sarah Hewin, senior economist at Standard Chartered, said (via Sky)

“There doesn’t seem to be a lot of support for euro at this point.

“It does not just relate to gas prices but to what seems to be a split within the ECB [European Central Bank] over how far they raise rates.”

The ECB sets rates later this month, and must choose between a 25 basis point rise and a larger 50bp move to tackle inflation.

Neil Wilson, chief markets analyst at markets.com, says the ECB needs to act - rather than simply letting the currency weaken, causing even worse inflation:

“Time for an emergency inter-meeting hike to show they are serious - the market just doesn’t believe in the ECB any more. Inflation above 8% and interest rates remain negative… it’s madness.”

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Gold hit its lowest level in nine months today, dropping to $1,722.36 per ounce for the first time since last September.

The strong US dollar and bets for steep interest rate hikes weighed on bullion prices (gold doesn’t provide a yield, or interest, unlike bonds or shares).

Han Tan, chief market analyst at Exinity, explained:

“Gold is set to stay significantly suppressed over the near-term, as the weight of more incoming super-sized Fed rate hikes hang like a millstone around gold’s neck,”

12 Jul 202208.40 EDT

Mark Sweney

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The Evening Standard has reported a loss of £14m for last year as the Covid pandemic continued to dent advertising income and commuters remained at home, taking the London freesheet’s losses to almost £70m in the past five years.

The newspaper, which is majority owned by the Russian-British businessman Evgeny Lebedev, embarked on a big cost-cutting drive during the pandemic, reducing staff numbers by more than a quarter from 320 to 236 in the 53 weeks to 3 October last year.

The publisher endured another tough year, which also featured the departure of its editor, Emily Sheffield, the sister of the former prime minister David Cameron’s wife, Samantha, after just 15 months. Sheffield had taken over from the former chancellor George Osborne last October.

The Evening Standard reported a 36% year-on-year fall in turnover from £44m in 2020 to £28m last year. The title has been hit particularly hard as it relies on advertising for 90% of its revenues.

12 Jul 202208.14 EDT

Alex Lawson

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Shares in EDF have surged on reports that the French government is prepared to pay more than €8bn (£6.8bn) to nationalise the energy company.

France’s prime minister, Élisabeth Borne, announced plans last week to take full control of the power group in an attempt to keep a handle on spiralling household electricity bills.

The cost of buying the 16% of EDF shares that the government does not already own, plus any outstanding convertible bonds, could be as high as €10bn, Reuters reported.

Back in the currency markets, the euro is pushing away from parity with the US dollar.

The single currency is now up (!) a little on the day, as the dollar loses ground against other currencies.

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Some traders may be taking profits on their bets against the euro, after pushing it to within a whisker of the $1.0000 mark.

Brad Bechtel of investment bank Jefferies says:

Unfortunately for EUR bulls, we are far from out of the woods on the EUR selling and although we should continue to see a good amount of profit-taking around these levels which may support the pair for a bit, the selling pressure is unlikely to abate for now.

If the Nord Stream maintenance period does not result in the tap being shut off for good that will provide some necessary relief for the EUR but that will likely be temporary in nature.

The EUR/USD is massively over sold on every technical indicator.

The oil price is now sliding, a sign that recession fears are on the rise.

Brent crude has dropped over 4% to $102.34 per barrel, back towards the three-month lows seen last week.

US crude has dropped back below $100/barrel for the first time since Thursday, at $99.06.

Fears of gas shortages in Europe, and the latest Covid-19 lockdowns in China, have increased the risk of a downturn.

Ricardo Evangelista, senior analyst at ActivTrades, says the markets appear increasingly convinced that a global economic slowdown is coming.

With inflation remaining high and forcing central banks and fiscal authorities to withdraw stimulus, an energy crisis in Europe that appears to be about to get worse and trigger a recession, and disappointing demand in China due to continuing Covid concerns, the prospects for future oil demand are being revised to the downside.

Such expectations, that a decline in demand in the months ahead will become the dominant market driver, are keeping pressure on the price of the barrel and could lead to further drops.

Another economic warning sign -- US small business confidence has dropped to the lowest level in over nine years, as firms are hit by inflation.

The National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 3.6 points last month to 89.5, the lowest level since January 2013.

Thirty-four percent of owners said that inflation was their biggest single problem in running their business, an increase of six points from May and the highest level since the fourth quarter of 1980.

But, demand for workers remained solid.

Here’s our news story on Heathrow asking airlines to stop selling tickets to fly over the next two months, as it struggles to cope with demand.