EXPLAINER: What's the impact of euro parity with the dollar?

The euro is hovering close to parity with the dollar, falling to its lowest level in 20 years and even briefly touching a one-to-one exchange rate with the U.S. currency this week.

It's a psychological barrier in the markets. But psychology is important, and what the euro's slide underlines is the foreboding in the 19 European countries using the currency as they struggle with an energy crisis caused by Russia's war in Ukraine.

Here's why the euro's slide is happening and what impact it could have:

WHAT DOES EURO AND DOLLAR PARITY MEAN?

It means the European and American currencies are worth the same amount.

A currency's exchange rate can be a verdict on economic prospects, and Europe's have been fading. Expectations that the economy would see a rebound after turning the corner from the COVID-19 pandemic are being replaced by recession predictions.

More than anything, higher energy prices and record inflation are to blame. Europe is far more dependent on Russian oil and natural gas than the U.S. to keep industry humming and generate electricity. Fears that the war in Ukraine will lead to a loss of Russian oil on global markets have pushed oil prices higher. And Russia has been cutting back natural gas supplies to the European Union, which EU leaders described as retaliation for sanctions and weapons deliveries to Ukraine.

Energy prices have driven euro-area inflation to a record 8.6% in June, making everything from groceries to utility bills more expensive. They also have raised fears about governments rationing natural gas to industries like steel, glassmaking and agriculture if Russia further reduces or shuts off the gas taps completely.

The sense of doom increased when the major Nord Stream 1 pipeline from Russia to Germany closed Monday for scheduled maintenance,...