Euro Plunges to Two-Decade Low Versus Dollar as Economic Fears Mount

By Reuters
July 5, 2022 Updated: July 5, 2022

LONDON—The euro sank to a two-decade low versus the dollar on Tuesday as another surge in natural gas prices reignited worries about the health of the eurozone economy and data showed eurozone business growth slowed sharply in June.

The euro tumbled 0.9 percent against the dollar to $1.0325, its weakest since December 2002. Versus the Swiss franc, it dropped 0.7 percent to 0.9941 francs, its lowest since 2015.

“It will continue to be very difficult for the euro to rally in any meaningful way with the energy picture worsening and risks to economic growth increasing notably,” said Derek Halpenny, an analyst at MUFG.

Survey data showed business growth across the eurozone slowed further last month and forward-looking indicators suggested the region could slip into decline this quarter as the cost of living crisis keeps consumers wary.

The dollar index gained 0.8 percent to 105.98, a new two-decade high for the currency.

Elsewhere, stock markets gave up early gains on Tuesday as the latest surge in natural gas prices rattled sentiment, offsetting earlier optimism about signs of easing U.S.–China trade tensions.

Australia’s central bank became the latest to extend its interest rate tightening cycle, hiking by a second straight 50 basis points, although the Aussie dollar fell 0.8 percent as investors interpreted the bank’s accompanying messaging to be more dovish than expected.

With U.S. markets closed on Monday, trading is expected to be livelier on Tuesday and Wall Street reversed early gains and headed lower by 0825 GMT.

A survey showing China’s services activity grew at the fastest pace in almost a year also helped sentiment.

But as European trading picked up, the Euro STOXX reversed course and was last down 0.43 percent while Germany’s DAX fell 0.6 percent. The FTSE 100 dropped 1.05 percent.

In Asia, MSCI’s gauge of Asia Pacific stocks outside Japan rose 0.17 percent.

Tuesday offers little in the way of key economic data but later this week both the U.S. Federal Reserve and European Central Bank release their minutes from recent policy meetings and on Friday widely watched U.S. payrolls data are published.

Redmond Wong, market strategist, at Saxo Markets Hong Kong, said traders would continue to watch closely the trajectory for inflation and growth in major markets.

“Market participants are still assessing the impact of the tug of war between inflation being at persistently elevated levels and signs pointing to potentially an incoming U.S. recession,” he said.

Those concerns were front and center in South Korea, where June inflation accelerated to its fastest since the Asian financial crisis, fanning expectations the central bank could deliver a 50 basis point rake rise for the first time next week to cool prices.

U.S. treasury yields returned from the holiday marginally higher, with the yield on benchmark 10 year notes at 2.93 percent but failing to push back above the symbolic 3 percent level.

Eurozone government bond yields fell on uncertainty about the future path of monetary tightening by the European Central Bank and as investors fearful of the economic outlook sought safety.

Brent crude futures rose 0.2 percent to $113.8 a barrel, while U.S. crude oil increased 1.73 percent to 110.31 a barrel.

Spot gold dropped 0.29 percent to $1804 an ounce.

By Tommy Wilkes