Euro US Dollar (EUR/USD) Exchange Rate Touches Fresh 20-Year Low
The Euro US Dollar (EUR/USD) exchange rate has slipped to a fresh 20-year low today as global recession fears continue to pick up steam, boosting the appeal of safe-haven currencies.
At time of writing, the EUR/USD exchange rate is around $1.023, a new two-decade low.
Euro (EUR) is Struggling to Regather Strength amid Recession Fears
The Euro (EUR) is extending its downside today, falling to a fresh 20-year low against the US Dollar (USD). Amid a worsening global growth outlook, the Euro remains under pressure as a looming energy crisis is set to compound matters.
The ongoing Russian invasion of Ukraine continues to weigh on the global economy as energy and supply issues persist. An impending gas crisis in Europe is a very real possibility and could push the continent further into dire straits. Analysts at Commerzbank warn that Russia will continue their reduction in gas exports to the Euro zone. Stating the ‘risk of a gas crisis in Europe is very real.’
Perhaps limiting EUR’s losses today were some relatively positive data releases. An unexpected rise in German factory orders saw a modest increase of 0.1%, beating expectations of a 0.6% drop. This was the first recorded growth in the sector in four months, despite supply chain issues caused by the Ukraine crisis. Euro area retail sales also saw an increase of 0.2% month on month in May, but just missing estimates of 0.4%.
US Dollar (USD) Strengthens to Highest Levels Since 2002 amid Flight to Safety
The US Dollar surged to its highest level in 20 years yesterday. Safe-haven flows continued to support the ‘Greenback’ amid growing fears of a global recession.
While Europe’s gas crisis could trigger a Eurozone recession, there are also worries about America’s economy. The two- to 10-year Treasury bond yield curve has inverted once again, which often indicates an impending US recession.
However, even if the US was to follow Europe into a recession, the ‘Greenback’ could still come out on top. Analysts at Commerzbank feel that with recessions on both sides of the Atlantic, a US recession would be more ‘manageable’:
‘A recession in Europe caused by a gas crisis is likely to be deeper and longer because it cannot ‘simply’ be ended by an adjustment of monetary policy. It is therefore only logical that the US dollar is going to be the winner in the new situation.’
In addition, the prospect of a global recession is driving traders to invest in safer assets, such as the US Dollar.
Euro US Dollar Exchange Rate Forecast: Hawkish Fed to Keep Pressure on the Euro?
The US Dollar could see further gains today with the release of the Fed’s June policy meeting minutes. With strong hints at another 75bps hike at the next meeting, a continued aggressive stance could lend further support. Elsewhere, both the JOLTs job openings and the non-manufacturing PMI are due to print today.
As for the Euro, data remains thin on the ground for the rest of the day. Several speeches are due tomorrow with the European Central Bank (ECB) under increased pressure to tame inflation whilst avoiding a recession. Investors will look for hints on what path the central bank will take.