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.
Gold declines under pressure from the dollar
Gold prices declined in European trade on track to hit three-month highs as the dollar index rallied to fresh 20-year highs following strong US inflation data.
Gold Prices Today
Gold prices fell over 0.4% to $1,843 an ounce , after closing up 0.75% on Wednesday, away from a three-month low at $1,832.
US Dollar
The dollar index rose 0.5% today for the sixth straight session, hitting 2002 highs at 104.54.
Dollar's gains are weighing on gold prices and making them more expensive to holders of other currencies.
The inflation data for the US bolstered the case for multiple 0.50% rate hikes by the Federal Reserve throughout the year.
Estimates
Analysts expect gold to give up $1,830 and potentially tumble below $1800 if the dollar expanded its gains.
The SPDR
Gold holdings at the SPDR Gold Trust fell 2.03 tones yesterday to a total of 1,066 tones, the lowest since March 15.
Sterling sharpens decline to two-year nadir after bearish data
Sterling declined in European trade for the sixth straight session against dollar, hitting two-year lows after bearish data from the UK, which cut chances of the cycle of rate hikes in Britain throughout 2020.
The dollar on the other hand jumped to fresh 20-year highs following forecast-beating inflation data last month.
GBP/USD fell 0.7% to 1.2165, the lowest since May 2020, after closing down 0.5% on Wednesday, the fifth loss in a row.
Bearish Data
UK economy grew 0.8% in the first quarter of the year, missing estimates of 1%, and down from 1.3% in the fourth quarter of last year.
On a monthly basis, UK economy contracted 0.1% in March, compared to a 0.1% growth rate in February.
Such data cut down chances of several more UK rate hikes in 2022.
BoE Estimates
Bank of England decided to hike rates by 25 basis points last week to 1%, the fourth increase in a row.
The members are preparing for another 25 basis points, however they warned from a recession if rates were increased by 0.50%.
It didn't stop at this, the BoE went as far as predicting an actual recession next year by 0.25%.
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.
Estimates
As for the pound, analysts now expect it to fall as low as 1.2 while potentially even piercing that important barrier in the months to come.
