Euro hovers near 20-year lows, why?

2022-05-12 14:22:04 GMT (Economies.com)
Euro hovers near 20-year lows, why?

Euro is about to trade below 1.04 against dollar for the first time in five years, with analysts expecting 20-year lows soon, but why? we explain in this report. 

 

EUR/USD

 

EUR/USD fell 1.05% today to 1.0401, the lowest since January 2017, with a session-high at 1.0529.

 

The Fuel Crisis

 

As Russian gas supplies decline by a quarter to Europe after Ukrainian troops stopped the usage of a main pipeline.

 

The tumble in supplies spread some panic, as it's the first time for such an event to occur since the Russian invasion of Ukraine.

 

Inflationary Recession

 

The European economy now genuinely faces an inflationary recession risks, with consumer prices at record lows as GDP growth halts.

 

Such events will put huge pressure on the ECB and all but rule out a rate hike soon.

 

The ECB

 

The ECB's hands are highly tied right now, despite the runaway inflation, with analysts now expecting no rate hikes this year.

 

Even after deciding to hike rates, the ECB asserted it'll continue its assets purchases to support the economy.

 

The Dollar

 

The dollar index rose 0.5% on Thursday for the sixth straight session, hitting a 2002 high at 104.54 against major rivals. 

 

The gains are bolstered by very high inflation data for the UK last month, paving the way for several more 0.5% Fed rate hikes this year. 

 

Policy Divergence 

 

This we see a serious monetary policy divergence between Europe and the US, leading to the current extreme tumble in euro's standing. 

 

Estimates

 

Now analysts expect euro to fall as far as 1.0340 against dollar soon, and potentially hit parity in the next few months.

 

As the European economy continues to face serious growth risks, the euro is expected to continue suffering throughout the year, and potentially hitting 2002 lows. 

 
 
 
  Symbol Last Change Chg.%
1.0755
0.0102
0.9599%
1.2649
0.0086
0.6858%
22.097
0.186
0.849%
114.265
4.126
3.746%
117.40
3.58
3.15%
1853.350
-3.085
0.166%
 
 
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