Recession fears grow as the euro reaches a 20-year low against the dollar
Following energy shortages and fears over a potential recession, the euro reached its lowest value against the dollar in nearly two decades earlier this week.
As worries increase over Europe’s economic outlook in the coming months, the euro fell to a low of low as $1.01615 on Wednesday before reaching $1.01845. This is the lowest since 2002.
The dollar index, which measures the dollar against six key currencies, including sterling, yen, and euros, was close to a 20-year peak of 107.27 overnight.
Recession worries have been raised amid Europe’s energy shortages, with experts calling for the EU to transition to green energy to reduce dependence on Russian oil.
According to Westpac strategists: “US recession risk will periodically undercut the dollar, but Europe’s energy cost squeeze is a greater threat to the Eurozone growth outlook. The DXY’s (dollar index) broader medium-term uptrend likely persists for a while yet, with scope for a further unwinding of pricing for ECB policy tightening.”
Data shows that US job openings fell less than expected in May and, it’s expected that employers added 268,000 non-farm payrolls during the month of June.
The dollar-yen rate is sensitive to changes in US yields and eased 0.07% to 135.79 yen, after a 24-year high at the end of last month of 137.00 yen. Most analysts expect this rate to stay above 130 by the end of the year, although some predict it could reach a new high of 140.
Additionally, the sterling hit a new low against the dollar as inflation hit households, and British Prime Minister Boris Johnson faced rebellion within his party, leading to his resignation. Sterling was little changed at $1.1924, after an overnight dip to the lowest since March 2020 at $1.1877.
When analysing the situation, investors also considered Bank of England chief economist Huw Pill’s comments, about preferring a “steady-handed” approach to “one-off bold moves,” which can “be disturbing.”