Surging energy costs and fears of a nearing recession in Europe have brought the U.S. dollar and euro to parity for the first time since 2002.

With more Federal Reserve hikes promised over the second half of 2022 and Europe expected to fall into recession as soon as this winter, the strongest dollar in decades should continue to strengthen against the euro.

"This gap will only widen into the end of the year," said Antoine Bouvet, a senior rates strategist with ING.

The exchange rate between the dollar and the euro is one of the symptoms of the ongoing economic divergence between the U.S. and the eurozone, according to Bouvet. The odds of a recession are increasing in both Europe and the U.S., but the eurozone recession could hit this winter as an energy supply crunch from Russian sanctions worsens. Bouvet said a recession in the U.S. is not expected until the second half of 2023.

The Federal Reserve has hiked its benchmark federal funds rate by 150 basis points this year and is expected to climb by another 75 basis points later this month. The European Central Bank has yet to start to tighten the ultraloose monetary policy put in place at the start of the pandemic. The dollar tends to strengthen when the Fed hikes rates, drawing more global investors to U.S. government bonds and other dollar-denominated investments that are considered relatively low risk.

Since its most recent low in February 2021, the Dow Jones FXCM Dollar Index has rallied about 13%. The index measures the dollar's value against four currencies: the euro, the British pound, the Japanese yen and the Australian dollar. The index on July 11 settled at its highest point since 2002.

"King dollar has been on quite the run over safe-haven flows from the war in Ukraine and over widening interest rate differential expectations between the Fed and the ECB," said Edward Moya, a senior market analyst with OANDA. "It looks like the Fed is halfway done with their hiking cycle, while the ECB will have a quick start and stop with their rate increases."

The dollar has gained on all of its G-10 peers so far this year, particularly the Japanese yen, which has fallen nearly 16.2% to the dollar, and the Swedish krona, which has fallen almost 14.7%.

In addition to a potential recession in the EU, the UK 's economy has stalled and Japan's economy is showing signs of a severe slowdown, according to Tom Essaye, a trader and founder of financial research firm The Sevens Report, in a July 12 note.

"That's in direct contrast to market expectations for the Fed," Essaye wrote. "The U.S. economy remains buoyant (it's clearly losing momentum but remains in solid shape for now) and that means the Fed will continue to hike rates aggressively until there's clear evidence that inflation has peaked and is receding."