Euro tumbles to two-decade low as recession fears grow

  • The euro at its lowest since the end of 2002
  • The dollar appreciates thanks to demand for safe havens
  • Yen crashes again near 24-year lows

NEW YORK/LONDON, July 5 (Reuters) – Demand for safe havens strengthened the dollar on Tuesday to levels not seen in 2002, while the euro fell to its lowest level in two decades, the latest price surge gas in Europe fueling fears of recession.

The dollar index rose 1.5% and the euro fell 1.75% to lows last seen in late 2002. It was the biggest single drop ever. day for the euro and the biggest rise in the dollar since COVID-19 shook the markets in March 2020. .

Other currencies also fell as recession fears sent stocks in Europe and on Wall Street tumbling. The Japanese yen again brushed its lowest level in 24 years, the Canadian dollar fell to its lowest level in almost 19 months and the Norwegian krone fell more than 2% as gas workers put on on strike, heightening concerns about European growth. Read more

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The risk of Europe slipping into a recession has increased after another 17% jump in natural gas prices in Europe and Britain is expected to push inflation even higher. Read more

Concerns over the reaction of the European Central Bank eroded sentiment after the head of the German Bundesbank, Joachim Nagel, on Monday denounced the ECB’s plans to protect highly indebted countries against soaring borrowing rates . Read more

“It will still be very difficult for the euro to recover significantly with the deterioration of the energy situation and the notable increase in risks to economic growth,” said Derek Halpenny, head of global markets research at MUFG.

Traders told Reuters there was also a large dollar order in early trading, possibly as U.S. markets were closed on Monday for the July 4 holiday.

Coupled with energy price angst, it caused a chain reaction, spreading through stock and bond markets, then accelerating the fall of the euro as it broke through its 2017 low to fall to 1 $.0236.

The high volatility also saw the euro fall to its lowest level against the Swiss franc since the Swiss National Bank abandoned its monetary cap in 2015. It also fell against the pound, although the own worries economic and political factors for the pound have again left it below 1.20 dollars.

The euro’s decline is just a harbinger of what could happen later this month if Russian gas to Germany is cut off, a move that could push the currency past parity and to fall toward $0.98 in August, Nomura Securities said.

With the euro near two-decade lows, volatility surged and options trading increased, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“Whether it’s playing lower as a speculative move or whether it’s a hedge against long Euros, I can’t tell you,” Chandler said.

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

The Aussie slipped 1.4% to $0.677, after hitting $0.6895 earlier in the day. It is now down almost 7% this year.

“We’ve had so many central banks raising these large increases that we’re now talking about reverse currency wars,” Rabobank FX strategist Jane Foley said, referring to cases where central banks need to raise rates just to prevent their currencies from falling.

“This could become concerning” for a number of currencies, she added, especially if the US Federal Reserve continues its strong rate hikes in the coming months, as expected.

Dollar strength, meanwhile, pushed the yen to a 24-year low. He was last at 135.825 to the dollar.

Eastern Europe was also feeling the heat as its countries are among the most dependent on Russian gas. The main MSCI EM FX index hit its lowest since November 2020 with euro-linked currencies such as the Hungarian forint, Polish zloty and Romanian leu down 1.6-2.3% against the dollar .

Currency rates at 12:50 p.m. (4:50 p.m. GMT)

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Reporting by Herbert Lash, additional reporting by Marc Jones in London, Danilo Masoni in Milan and Sruthi Shankar; Editing by Jacqueline Wong, Bernadette Baum, Angus MacSwan and Deepa Babington

Our standards: The Thomson Reuters Trust Principles.

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