The euro hit a 20-year low against the dollar on Tuesday as concerns over Fed tightening and the energy crisis in Europe soured investor sentiment.
The common European currency fell a whopping 0.4% to $0.9899, hitting a 20-year low and trading below par with the dollar on Monday. Markets were clouded by concerns that Russia might cut gas supplies to Europe in retaliation for Western aid to Ukraine. Economic Outlook for the Eurozone.
The currency fell 2.7% against the dollar through August, marking its third straight month of decline.
The move reflects both growing concerns about how the energy crisis will affect the European economy and expectations that the US Central Bank will continue to aggressively raise interest rates. The attractiveness of owning assets is increasing.
The Dollar Index, which measures the US currency against six other currencies, rose 2.8% this month and has risen more than 7% in the past three months.
“There are growing concerns about the eurozone economy. [than the US]Paras Anand, Chief Investment Officer, Artemis Investment Management said:
It is also unlikely that the European Central Bank will support the euro due to a significant interest rate hike that could hasten a recession, he added. “The ECB will probably act more conservatively,” Anand said than the Fed.
A survey of eurozone business executives released on Tuesday highlighted concerns about the bloc’s economy. The S&P Global Purchasing Managers Index fell to 49.2 in August from 49.9 the previous month, indicating a higher rate of contraction in business activity.
“Europe is starting to see activity diminish,” said Juliette Cohen, strategist at CPR Asset Management. He pointed out that the main risk is to completely stop the
In equities, Europe’s STOXX 600 stock index fell 0.5% in afternoon trading, its biggest drop in more than a month on Monday.
Wall Street’s S&P 500 index held steady after Tuesday’s opening bell, closing 2.1% lower in previous trading and its steepest decline in more than two months. The tech-heavy Nasdaq Composite rose 0.1%.
The move comes ahead of a symposium by central bankers in Jackson Hole later this week, where Fed Chairman Jay Powell said interest rates would rise to keep consumer demand down in an effort to tackle stubbornly high inflation. expected to underscore its commitment to raising
“Chair Powell is likely to say the Fed will continue to raise rates for as long as it can,” said Standard Chartered strategist Steve Englander.
The Fed’s July monetary policy meeting minutes show it raised the key rate by 0.75 points, setting it in a target range of 2.25% to 2.5%.
In the bond market, the 10-year US Treasury benchmark yield rose 0.04 points to 3.08%. The debt yields that underpin loan pricing around the world have been rising in recent days as traders anticipated Powell’s hawkish tone at Jackson Hole.