HomeBusinessEuro tumbles to two-decade low as recession fears grow

Euro tumbles to two-decade low as recession fears grow

  • The euro at its lowest since the end of 2002
  • The dollar appreciates thanks to demand for safe havens
  • Yen crashes again near 24-year lows

NEW YORK, July 5 (Reuters) – Demand for safe havens strengthened the dollar on Tuesday to levels not seen in 2002, while the euro fell to its lowest level in two decades, the last gas price surge in Europe fueling fears of recession.

The dollar index rose 1.6% at one point and the euro fell as much as 1.75% to lows last seen in late 2002. This was the biggest one-day drop for the euro and biggest one-day gain for the dollar since COVID-19 collapsed. markets in March 2020.

Other currencies also fell as recession fears dragged stocks in Europe and initially on Wall Street. The Japanese yen again brushed its lowest level in 24 years, the Canadian dollar fell to its lowest level in almost 19 months and the Norwegian krone fell more than 2% as gas workers put on on strike, heightening concerns about European growth. Read more

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The risk of Europe slipping into recession has increased after a sharp 17% rise in natural gas prices in Europe and Britain is expected to push inflation even higher. Read more

Concerns over the reaction of the European Central Bank eroded sentiment after the head of the German Bundesbank, Joachim Nagel, on Monday denounced the ECB’s plans to protect highly indebted countries against soaring borrowing rates . Read more

A risk-free mood prevailed in markets as an energy crisis looms in Europe, said Bipan Rai, head of North American currency strategy at CIBC Capital Markets in Toronto.

“The threat of a eurozone recession is a clearer risk now compared to before,” Rai said.

Traders told Reuters of a large dollar order at the start of trade in London that set off a chain reaction and accelerated the euro’s slide as it broke its 2017 low to fall to $1.0236.

The high volatility also saw the euro fall to its lowest level against the Swiss franc since the Swiss National Bank abandoned its monetary cap in 2015. It also fell against the pound, although the own worries economic and political factors for the pound have again left it below 1.20 dollars.

The euro’s decline is just a harbinger of what could happen later this month if Russian gas to Germany is cut off, a move that could push the currency past parity and to fall toward $0.98 in August, Nomura Securities said.

“We have a central bank that seems to be billions of miles behind the curve and more concerned with growth than inflation,” Axel Merk, president and chief investment officer of Merk Investments, Palo Alto, Calif., told about the ECB.

“None of the central bankers, including (ECB President Christine) Lagarde, will say that maybe something is wrong with their approach.”

With the euro near two-decade lows, volatility surged and options trading increased, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“Whether it’s playing lower as a speculative move or whether it’s a hedge against long Euros, I can’t tell you,” Chandler said.

The pound fell to a two-year low against the dollar on Tuesday as a crisis in British Prime Minister Boris Johnson’s government added to pressure on a currency already reeling from fears of recession and a reborn greenback. As of 19:30 GMT, it was trading down 1.25% at $1.195 GBP=D3. Read more

The Australian dollar fell despite the country’s first consecutive 50 basis point interest rate hike in recent memory overnight, which also cemented the fastest rate hike since 1994. read more

The Aussie slipped 1.4% to $0.677, after hitting $0.6895 earlier in the day. It is now down almost 7% this year.

Dollar strength pushed the yen to a 24-year low, before mitigating some declines. He was last at 135.705 to the dollar.

Eastern Europe was also feeling the heat as its countries are among the most dependent on Russian gas. The main MSCI EM FX index hit its lowest since November 2020 with euro-linked currencies such as the Hungarian forint, Polish zloty and Romanian leu down 1.6-2.3% against the dollar .

Bid rates for currencies at 3:51 p.m. (1951 GMT)

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Reporting by Herbert Lash, additional reporting by Sinéad Carew in New York, Marc Jones in London, Danilo Masoni in Milan and Sruthi Shankar; Editing by Bernadette Baum, Angus MacSwan, Deepa Babington and Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.

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