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  • Writer's pictureanalysiswatch

Title: Euro slumps to two-decade low as recession fears bite

Jul 05, 2022 08:11AM ET

By: AnalysisWatch

The euro fell to a two-decade low on Tuesday as a recent surge in European gas prices added to recession worries in the region and a rebound in U.S. Treasury yields sent the dollar on another run higher.

Many currencies were under pressure. The euro fell 1.2% to its weakest level since late 2002; the Japanese yen again traded near a 24-year low; and the Norwegian krone slumped 1.2% as gas workers there went on strike.

Economists said the risk of Europe falling back into recession was rising sharply after another sharp 17% rise in natural gas prices in both Europe and the U.K. was expected to push inflation even higher.

Concerns about the European Central Bank's response gnawed at sentiment after German Bundesbank chief Joachim Nagel sharply criticized ECB plans to protect heavily indebted countries from rising borrowing rates.

Traders who spoke to Reuters said there had also been a large dollar order in early trading, perhaps because U.S. markets had been closed on Monday for the July 4 holiday.

This, combined with energy price fears, triggered a chain reaction that affected equity and bond markets and accelerated the fall of the euro, which broke its 2017 low of $1.0340, they said.

The strong volatility also caused the common currency to fall against the Swiss franc to its lowest level since the Swiss National Bank lifted the currency cap in 2015. It also weakened against the pound, although the pound had fallen back below $1.20 on its own economic and political concerns.

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