The euro fell to its 20-year low against the dollar on Tuesday as concerns over the European economy had a major impact on the currency. This was the most prominent sign of new global economic instability, reflected in stock price volatility and oil price plunges.
The S & P 500 was trading at noon on Tuesday, falling 1.5% after European stocks fell. Brent crude, the international benchmark, fell 9% to about $ 103 a barrel, the largest daily decline since March. The US benchmark West Texas Intermediate fell almost as much, fearing that economic activity could soon decline, falling below $ 100 a barrel for the first time since May.
Many analysts say it is only a matter of time before the euro reaches a one-to-one exchange rate. The dollar as the European economy suffers from high inflation, labor insecurity and energy market turmoil.
“Overall, I think the outlook is sharply deteriorating,” said Daniela Ordonez of Oxford Economics on Tuesday about the eurozone economy. “Geopolitical tensions will not ease, which could push gas prices further and increase inflationary pressures,” she said.
Russia is steadily limiting the supply of natural gas to Western Europe, and German authorities are an economic attack in retaliation for sanctions and military aid to Ukraine, raising concerns about gas distribution in the event of a worsening situation. ing. Then this week, another important European gas supplier, the Norwegian energy worker, went on strike over wages, further limiting supply and pushing up gas prices.
With a potential “power crunch”, Jordan Rochester of Nomura predicted that the euro would be equivalent to the dollar by August, he wrote in a report on Tuesday.
The euro slide makes imports more expensive for people and businesses in 19 countries that use currencies, further exacerbating inflation problems in the region. The European Central Bank is expected to raise interest rates for the first time in more than a decade at a meeting later this month to curb the highest inflation since the euro was created in 1999.
Investors are worried that the ECB will move too slowly as the eurozone’s economic outlook becomes darker, and the downturn may not have time to raise interest rates before the ECB diverts. There are growing expectations that the eurozone economy could fall into recession, especially if energy supplies continue to be disrupted.
The Federal Reserve is expected to remain aggressive in raising rates, in addition to concerns about the outlook for the eurozone economy, making dollar-denominated assets more attractive than euro-denominated assets.
“As growth prospects soften further, the ECB’s pull-up window could close even faster than previously expected,” HSBC’s Dominique Banning said in a research note Tuesday. That leads to a “weak outlook” for the euro, he said.
Echenelson Report that contributed.
