As Recession Fears Grow, The Euro Falls to a Two-Decade Low

Euro Drop
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The recent spike in European gas costs contributed to concerns about a recession, sending the euro to a two-decade low on Tuesday, but the dollar was unstoppable as U.S. Treasury yields made a comeback.

Many other currencies were under stress. The euro lost 1%, making it the worst it has been since the end of 2002. As gas employees went on strike, Norway’s crown fell 1.2 percent, and the Japanese yen once more traded at 24-year lows.

The probability of Europe slipping back into a recession appeared to be increasing, according to Derek Halpenny, head of global markets research at MUFG, following yet another significant 17 percent increase in natural gas prices in both Europe and Britain.

After German Bundesbank president Joachim Nagel criticized the ECB’s efforts to try and protect heavily indebted countries from rising borrowing rates, people began to worry about how the ECB will respond.

With the energy situation getting worse and threats to economic development rising noticeably, it will continue to be very difficult for the euro to rally in any meaningful sense, according to MUFG’s Halpenny.

The severe sell-off caused the euro’s value versus the Swiss franc to tumble to its lowest level ever since the Swiss National Bank abandoned its currency control in 2015. It declined versus the pound as well, despite the fact that the pound is now dealing with its own economic and political issues.

Despite the country’s first consecutive 50 basis point interest rate increases in recent memory, which also solidified the fastest rate increase since 1994, even the Australian dollar failed to gain traction.

After reaching a high of $0.6895 earlier in the day, the Australian dollar swung 1 percent lower to $0.6787. It has now decreased by around 7% so far this year.

When alluding to situations when central banks must raise rates in order to prevent their currencies from tumbling, Rabobank FX strategist Jane Foley said, “We have seen so many central banks raising in these enormous increments that you are now having discussion of reverse currency warfare.”

She continued, “It might get worrying” for a number of currencies, particularly if the U.S. Federal Reserve proceeds with significant rate increases in the upcoming months as anticipated.

Meanwhile, the yen was pushed back down toward a 24-year low by the dollar’s strength. Last seen at a dollar price of 135.79.

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