Euro slumps to two-year low as recession fears escalate

NEW YORK, July 5 (Reuters) – Safe-haven demand on Tuesday pushed the dollar to levels last seen in 2002, while the euro slid to two-year lows as the latest rise in European gas prices fueled recession concerns.

The dollar index rose 1.6% at one point and the euro fell as much as 1.75% to the lowest levels seen at the end of 2002. This was the biggest single-day drop for the euro and the dollar’s biggest one-day gain since the COVID-19 jolt. markets in March 2020.

Other currencies also fell as recession fears filled stocks in Europe and initially on Wall Street. The Japanese yen was again near 24-year lows, the Canadian dollar slumped to almost 19-month lows and Norway’s crown tumbled more than 2% as gas workers went on strike, raising European growth concerns. Read more

After a 17% jump in natural gas prices in both Europe and the UK, the risk of Europe entering a recession rose, and it looked like it would push inflation further. Read more

Concerns over how the European Central Bank would react have eroded after German Bundesbank chief Joachim Nagel announced plans at the ECB on Monday to try to protect highly indebted countries from rising borrowing rates. Read more

Bipan Rai, head of North American FX strategy at CIBC Capital Markets in Toronto, said the market was in a risk aversion mood as an energy crisis loomed in Europe.

“The threat of recession in the euro area is now a clearer risk than before,” said Rai.

Traders told Reuters of a large dollar order that sparked a chain reaction in early London trade, accelerating the euro’s decline, which broke 2017 lows to $1.0236.

Heavy volatility also fell to its lowest level against the Swiss franc since the Swiss National Bank abandoned the currency cap in 2015. It also fell against the pound, but sterling’s own economic and political concerns have left it below $1.20 again.

Nomura Securities said the drop in the euro is just a warning sign of what could happen this month if Russia cuts gas to Germany.

“We have a central bank that appears millions of miles behind the curve and seems more concerned about growth than inflation,” said Axel Merk, chairman and chief investment officer of Merk Investments, ECB, Palo Alto, California.

“None of the central bankers, including (ECB Chairman Christine) Lagarde, will say anything is wrong with their approach.”

Marc Chandler, chief market strategist at Bannockburn Global Forex, said volatility has increased and options trading has increased as the euro approaches two-year lows.

“I can’t tell you if it’s a downside move like a speculative move or a hedge against the long euro,” Chandler said. Said.

Sterling slid to a two-year low against the dollar on Tuesday as a crisis in the government of British Prime Minister Boris Johnson increased pressure on a currency that was already reeling from recession fears and a resurgent dollar. By 1930 GMT it was trading 1.25% lower at $1,195 GBP=D3. Read more

The Australian dollar fell despite the country’s first consecutive 50bp rate hike overnight in recent memory, which also cemented the fastest rate rise since 1994. Read more

The Aussie was down 1.4% to $0.677 after climbing as high as $0.6895 earlier in the day. It’s now down about 7% this year.

The strength of the dollar pushed the yen to a 24-year low before it outstripped some losses. The most recent was 135,705 per dollar.

Eastern Europe was also feeling the heat, as their countries were most dependent on Russian gas. MSCI’s main EM currency index hit its lowest level since November 2020, with euro-linked currencies such as Hungarian forint, Polish zloty and Romanian leu depreciating 1.6-2.3% against the dollar.

Currency quote prices 15:51 (1951 GMT)

Reporting by Herbert Lash, additional reporting by Sinéad Carew in New York, Marc Jones in London, Danilo Masoni and Sruthi Shankar in Milan; Editing Bernadette Baum, Angus MacSwan, Deepa Babington and Mark Heinrich

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