The fall of the euro below the parity of the dollar brings little joy to business

The currency has fallen more than 12% against the dollar this year, falling below parity for the first time in two decades. This decline raises the cost of imports, exacerbating a devastating spike in energy prices and a record surge in inflation tearing the economy apart.

All of this is bad news for margins, and German companies warned on Tuesday that they are still facing "strong cost pressures." In addition, consumer inflation in the eurozone is already close to 9%, restraining demand, which will also affect sales and profits.

Whatever the positives of currency depreciation – the competitiveness of exports, the impact of the exchange rate on foreign earnings – are marred by the energy crisis and the threat of recession. Europe is particularly at risk because of its dependence on imports from Russia. Gas supplies have already declined, and further cuts will put an even greater strain on the region's economy, especially Germany.

The euro is not the only asset that reflects concerns about Europe's economy. According to Madison Faller, global strategist at JPMorgan Private Bank, a fall below parity "symbolizes the big downside risks to growth in Europe."

"European stocks are trading at a notable 30% discount to U.S. stocks, reflecting these risks and greater market weight for sectors such as energy and finance," she said.

Economic concerns are also fueling exchange-rate movements as traders bet they will limit the European Central Bank's ability to tighten, further pushing it further behind the Federal Reserve's aggressive growth rate. The growing interest rate differential benefits the dollar, and the current trend is equally a story of the dollar's appreciation. Against a basket of global currencies, the euro is only near its lowest level since 2015 on a close-off basis, according to the Bloomberg index.

But there is also a serious structural problem, because the energy crisis is forcing Germany to reconsider the long-term industrial model that has been at the center of its economy. This model, which ING strategist Chris Turner summarizes as "importing cheap energy, taking advantage of globalization, adding value, and exporting products around the world," has lost this important first pillar.

"If you see the euro-dollar at parity, you think it looks super cheap," he said. "But in reality, the fair value of the euro has been damaged by the energy crisis, and you can't rule out that it will lead to a decline of another 10 big numbers."

Other strategists agree that risks are reduced. Morgan Stanley forecasts the euro to fall to $0.97 this quarter, a level not seen since the early 2000s. JPMorgan expects it to test $0.95 in the second half of this year.

The euro's latest decline has brought it to its lowest level since 2002. Its weakest point was in 2000, when it fell below 85 cents. The currency then strengthened and was above $1.30 – on average – through the global financial crisis and the subsequent eurozone debt crisis. This has led to complaints from businesses and politicians at a time that force is hurting exports and the economy. 

Now the situation has changed to the opposite again.

Depreciation means that some European companies received an increase in profits that were converted from other currencies. Firms in the Stoxx 600 index earn on average more than half of their revenue from outside the region, and the U.S. is one of their largest markets.

For a company like Airbus SE, which sells aircraft in dollars and records revenue in euros, the fluctuation of the euro against the dollar by 1 cent affected the annual profit of 130 million euros, based on Bloomberg calculations.

Unilever Plc achieved a currency gain of 1.3 billion euros in the first half of the year due to the strengthening of the US dollar, the Brazilian real and the Indian rupee against the euro. This is more than twice the allowance a year earlier. 

But any currency gain there can be undermined by the impact on costs, especially if the materials are priced in dollars. 

"A weak euro is hurting the company's profits due to higher prices for dollar-denominated inputs," said Kenneth Bru, head of corporate research at Societe Generale SA, exchange rates and rates. "If domestic/global demand also weakens due to a blow to real incomes and consumer spending due to rising energy prices and global weakening demand, then company sales and profits could also suffer."