Title: Euro just off two-decade low, volatility at highest since March 2020

Jul 07, 2022 04:11AM ET

By: AnalysisWatch

The euro edged higher on Thursday, supported by rising risk appetite but still within striking distance of its two-decade low as rising energy prices fuel recession fears.

Meanwhile, implied volatility in the FX market was still at its highest level since late March 2020 at 11.2%, reflecting a nervous market as investors watch for parity between the single currency and the dollar.

Stocks gradually gained on Thursday as investors grappled with the risks of a recession and a possible pause in interest rate hikes.

The euro rose 0.1% to 1.019 after hitting a two-decade low of 1.01615 on Wednesday.

George Saravelos, global head of forex research at Deutsche Bank (ETR:DBKGn), said: "If Europe and the US slip into recession in the third quarter while the Fed is still raising rates, these levels (0.95-0.97 in EUR/USD) could well be reached."

Commodity-linked currencies gained as copper prices rose. Some investors returned to the market on Thursday after heightened recession fears pushed the red metal to its lowest in almost 20 months.

The Australian dollar rose 0.6 percent to 0.6821 against the US dollar after recently hitting 0.6762, its lowest level since May 2020.

The Swiss franc was still hovering around its highest level since 2015 against the euro at 0.9872.

Earlier this week, inflation, which was above the Swiss National Bank's (SNB) target range of 0-2% for the fifth month, had fuelled rumours that the central bank may soon tighten policy. Last month, it had raised its key interest rate for the first time in 15 years.

The SNB has signalled it is ready to appreciate the Swiss franc to curb imported inflation.

Sterling rose against a weakening dollar on Thursday after hitting a two-year low the previous day as Prime Minister Boris Johnson clung to power despite the resignation of key cabinet members.

Sterling rose 0.3 percent to 1.1935, while it was unchanged against the single currency at 85.48 pence.

Analysts said the pound moved mainly on broader economic concerns about a global recession, rather than political turmoil in Britain. Bitcoin rose 0.2% and last traded at $20,413. Ether fell 0.9% to 1,174.