Euro falls to two-decade low as recession fears develop

NEW YORK/LONDON, July 5 (Reuters) – The euro fell to a two-decade low on Tuesday as the latest rise in European gas prices added to worries about a regional recession, while safe-haven demand for US Treasuries strengthened the dollar.

Many currencies have been under pressure. The euro fell 1.5% to its lowest level since late 2002. Japan’s yen fell again near a 24-year low, while Norway’s crown fell 1.2% as gas workers in that strike. read more

The risk of Europe falling into recession has increased after another 17% increase in natural gas prices in both Europe and the UK looks likely to push inflation even higher. read more

Concerns over how the European Central Bank will respond to sentiment have eroded after German Bundesbank chief Joachim Nagel on Monday laid out the ECB’s plan to try to protect highly indebted nations. from increasing borrowing rates. read more

“It will be difficult for the euro to recover in any meaningful way given the worsening energy picture and risks to the economy,” said Derek Halpenny, head of global market research at MUFG. economic growth is increasing significantly.

Traders told Reuters there was also a large dollar order in early trading, presumably because the US markets were closed on Monday for the July 4 holiday.

One said that along with higher energy prices, it caused a chain reaction that spilled over into both equity and bond markets, then accelerated the euro’s decline as it broke through 2017 lows. is $1,0340.

The heavy volatility also sent the euro to its lowest level against the Swiss franc since the Swiss National Bank abandoned its currency cap in 2015. It also fell against the pound, although economic and political worries for the pound have driven it below $1.20 once again.

With euro trading at two-decade lows, volatility has skyrocketed and options trading has picked up, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“Whether it’s to play for the sake of the drop as a speculative move or whether it’s a hedge against the long euro, I can’t tell you,” Chandler said.

The Australian dollar fell despite the country’s first consecutive 50 basis point rate hike in recent memory overnight, which also underpins the fastest pace of gains there since 1994. Read more

The Aussie fell 1.4% to $0.677, after trading as high as $0.6895 earlier in the day. It is now down nearly 7% this year.

“We’ve had so many central banks raise rates with this big hike that you’re now talking about a reverse currency war,” said Jane Foley, strategist at Rabobank FX. Rabobank’s Foley said.

“It could be worrisome” for some currencies, she added, especially if the US Federal Reserve pushes ahead with major interest rate hikes in the coming months as expected.

Meanwhile, dollar strength pushed the yen to a 24-year low. Last at 135,825 per dollar.

Eastern Europe is also feeling the heat as their countries are some of the most dependent on Russian gas. MSCI’s main EM FX index hit its lowest level since November 2020 with Euro-linked currencies like the Hungarian forint, Polish zloty and Romanian leu down 1.6-2.3% against the dollar.

Currency bid price at 10:08 AM (1408 GMT)

Additional reporting by Danilo Masoni in Milan and Sruthi Shankar; Edited by Jacqueline Wong, Bernadette Baum, Angus MacSwan and Deepa Babington

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