A recovery for the euro is not in sight.

On Thursday, too, the common currency fluctuated around the parity mark, i.e. around a rate of 1.00 dollars per euro.

There are two main reasons why the American currency is currently strong and the euro weak.

On the one hand, institutional investors prefer the dollar in a market environment that is currently unsettled by fears of inflation and recession.

On the other hand, dollar investments have an interest rate advantage: the yield on the ten-year US government bond is 1.7 percentage points higher than that on the corresponding federal bond.

This spread was already over 2 percentage points in May and April and made a significant contribution to the fall in the value of the euro, which was then valued at 1.08 dollars.

Markus Fruehauf

Editor in Business.

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Daniel Hartmann, chief economist at Swiss asset manager Bantleon, blames the hesitant attitude of the European Central Bank (ECB) for the euro's weakness.

In fighting inflation, the US Federal Reserve is taking a much more determined approach with its interest rate hikes.

Atlanta Fed Chair Raphael Bostic is no longer ruling out a full percentage point hike at the next rate meeting in late July after inflation rose to 9.1 percent in June.

At the most recent meeting in June, the Fed made a 0.75 point hike to the 1.50 to 1.75 percent range.

In contrast, ECB President Christine Lagarde is still sticking to a deposit rate of minus 0.5 percent, despite inflation of 8.6 percent in June.

Next Thursday, it is set to hike 0.25 percentage points, or 25 basis points.

Even banks are losing patience.

This week, for example, the President of the Association of Volks- und Raiffeisenbanken (BVR), Marija Kolak, called for a significant interest rate hike of half a percentage point from the ECB.

"Towards the Italian Lira"

For Bantleon chief economist Hartmann, the ECB has missed the opportunity to build a reputation in the fight against inflation.

"With its hesitant course, however, the ECB risks discrediting the euro as a soft currency in the long term," he wrote in his comment published on Thursday, entitled "The euro is on the way to the Italian lira".

The euro fell to par with the Swiss franc weeks ago.

Hartmann criticizes the ECB for taking southern European countries into consideration instead of price stability.

The ECB is planning an instrument to prevent yields on government bonds within the monetary union from drifting too far apart.

On Thursday, the risk premium of Italian government bonds to ten-year Bunds rose to a good 2 percentage points, which was justified on the bond markets with the government crisis in Rome.

Hartmann fears that the current undervaluation against the dollar could become permanent.

In his view, such devaluation strategies are not promising, but lead to welfare losses.

The financial markets in the euro area would also be burdened in the long term.

"It is not attractive for either residents or foreigners to invest money in a region whose currency is under constant pressure," warns Hartmann.

According to Garrett Melson, strategist at French asset manager Natixis Investment Managers, the theoretical advantage of a cheaper euro with cheaper export goods is being wiped out by the energy crisis.

Because the industrial sector is coming under pressure on margins due to the higher costs and may be restricted by rationing.

Melson speaks of a perfect storm leading to a revaluation of the euro in an economy that no longer has current account surpluses and is now running trade deficits due to energy needs.

Melson currently sees no reason why the dollar's strength should reverse.