The euro collapses to the lowest levels of the dollar: what could happen now

The euro fell to a 20-year low against the dollarWith the rise in gas prices, which increased one’s fears Recession The prospect of a less aggressive rate-raising cycle by the European Central Bank (ECB) does not help the common currency. The euro fell to its share 1.0279 Against the dollar, the weakest level since the end of 2002, before recovering slightly and settling down 1.2% per share. 1.0296. Since the beginning of the year, the decline is more than 9%, with only -6% in the past three months.

Europe is in agony

More fragile growth in the eurozone, compared to the United States, does not allow Frankfurt to raise interest rates with the same decision made by the Fed. The fact that the Old Continent has greater exposure to Russia’s energy supply is fueling fears of a recession, with rising costs of living for citizens and tougher operating conditions for businesses. The composite PMI in the eurozone indicated that Growth slowed to minimum in 16 monthsAs a result of the contraction in industrial production and the weak growth rate of the third activity.

The price of the TTF gas futures contract, which operators use as benchmarks for the European market, shows an increase of 5.3% to 171 euros / megawatt-hour at 12.30 Italian time, a return to levels not seen since the beginning of March. The effect is a series of strikes in the extraction camps in Norway, which began today and could intensify in the coming days.

Market fears

Investors also continue to evaluate the words of eurozone central bankers. Yesterday “The Falcon” Joachim NagelThe head of the German Central Bank (Bundesbank) has criticized the idea of ​​lowering financing costs for southern European countries, saying that the European Central Bank’s attention should focus on fighting inflation.

Eurozone investor sentiment, according to data released yesterday, fell in July 2022 to its lowest level since May 2020, indicating an “inevitable” recession in the 19 eurozone countries. The Sentix index for the eurozone actually fell to -26.4 from -15.8 in June, well below expectations.

In this scenario, at a time of great uncertainty about the global outlook and significant market volatility, Risk-averse investors find safe haven in the dollarThey also consider the US Federal Reserve to put in place a robust system for raising interest rates.

“So many central banks have been so involved in raising interest rates in such large increases that there is now talk of reverse currency wars,” Jane Foley, a strategist at Rabobank FX, told Reuters, referring to the fact that central banks just need to raise rates. Currencies from falling. “That could be worrying” for a number of currencies, he added, especially if the Fed continues to raise interest rates significantly over the next few months, as expected by the market.

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