Euro slumps to 20-year-low against US Dollar; recession fears loom in Europe

It comes as fears of a recession in the eurozone ramp up, as gas prices soar and the Ukraine war shows no signs of abating

FPJ Web DeskUpdated: Tuesday, July 05, 2022, 03:51 PM IST
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The euro fell to its lowest level in two decades on Tuesday, sliding over 1% for the session to hit $1.0283 against the US Dollar (USD).

It comes as fears of a recession in the eurozone ramp up, as gas prices soar and the war in Ukraine shows no signs of abating.

Euro zone inflation hit a record 8.6% in June, prompting the European Central Bank to give markets advance notice of its intention to hike interest rates for the first time in 11 years at its July meeting.

Dollar gaining strength as volatility increases

The dollar’s strength continues, meanwhile, as risk-averse investors seek a safe haven, and the U.S. Federal Reserve embarks upon what looks to be an aggressive rate hike regime.

The euro has dropped more than 9% against the dollar this year as record inflation has escalated the squeeze on households and firms, and along with the fallout from war in Ukraine, is hampering the ECB’s ability to raise rates as fast as the Fed.

Two decade low for the Euro

The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.

Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.

Bloomberg’s options-pricing model predicted that there is now a 60% chance the currency hits parity versus the dollar by year-end, up from 46% on Monday.

Record-high inflation in Europe has been abetted by skyrocketing gas prices over recent months.

Natural gas prices in Europe on Monday extended their relentless rise, climbing to highs not seen since early March as planned strikes in Norway added to market woes about Russian supply cuts.

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