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Euro falls to two-decade low as recession fears mount – SABC News

Safe-haven demand bolstered the dollar on Tuesday to levels last seen in 2002, while the euro slumped to a two-decade low as the recent surge in European gas prices fueled recession fears.

The dollar index rose 1.6% at times and the euro fell as much as 1.75% to lows last seen in late 2002.

It was the biggest one-day fall for the euro and the biggest one-day gain for the dollar since COVID-19 rocked markets in March 2020.

Other currencies also tumbled as recession fears brought stocks in Europe and initially on Wall Street to their knees.

The Japanese yen was again near a 24-year low, the Canadian dollar fell to a near 19-month low and the Norwegian krone fell more than 2% as gas workers went on strike, adding to European growth concerns .

The risk of Europe slipping into recession rose after a large 17% surge in natural gas prices in both Europe and the UK was expected to push inflation even higher.

Concerns over how the European Central Bank will react have eroded sentiment after Deutsche Bundesbank chief Joachim Nagel on Monday outlined the ECB’s plans to protect heavily indebted countries from rising lending rates.

Markets were in a risk-off mood as an energy crisis loomed in Europe, said Bipan Rai, head of FX strategy for North America at CIBC Capital Markets in Toronto.

“The threat of a recession in the euro zone is now a clearer risk than it used to be,” Rai said.

Traders told Reuters a large dollar order in early London trade that set off a chain reaction and accelerated the euro’s decline as it broke its 2017 low, falling to $1.0236.

The strong volatility also caused the euro to fall to its lowest level against the Swiss franc since the Swiss National Bank lifted the currency ceiling in 2015.

It also fell against sterling, although the sterling’s own economic and political worries kept it back below $1.20.

The euro’s fall is just a warning sign of what could happen later this month if Russian gas to Germany is shut off, a move that could see the currency break parity and fall to $0.98 in August said Nomura Securities.

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

“None of the central bankers, including[ECB President Christine Lagarde]are going to say that maybe there’s something wrong with their approach.” With the euro near two-decade lows, volatility has skyrocketed and options trading has increased, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“Whether it’s playing like a speculative move down or if it’s a hedge against long euros, I can’t tell you,” Chandler said.

Sterling slipped to a two-year low against the dollar on Tuesday as a crisis in British Prime Minister Boris Johnson’s government increased pressure on a currency already plagued by recession fears and a resurgent greenback.

By 1930 GMT it was trading 1.25% lower at $1.195 = D3.

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

The Aussie slipped 1.4% to $0.677 after trading as low as $0.6895 earlier in the day.

It’s down almost 7% this year now.

Dollar strength pushed the yen to a 24-year low before erasing some declines.

It was last at 135.705 per dollar.

Eastern Europe also felt the heat as its countries are among the most dependent on Russian gas.

MSCI’s main EM-FX index hit its lowest level since November 2020, with euro-pegged currencies like the Hungarian forint, Polish zloty and Romanian leu falling 1.6-2.3% against the dollar.

Euro falls to two-decade low as recession fears mount – SABC News

Source link Euro falls to two-decade low as recession fears mount – SABC News

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