On Thursday, the euro’s value versus the dollar was close to a two-decade low as Europe’s energy issues cast a pall over the region’s economic prospects. For the first time since late 2002, the euro was roughly unchanged at $1.01845 on Thursday after falling as low as $1.01615 on Wednesday.
The dollar index, which compares the dollar to six other currencies, including the euro, pound sterling, and the yen, maintained fairly close to a 20-year high of 107.27 overnight. Olaf Scholz, the chancellor of Germany, declared that the country must move more quickly toward a green energy future due to Russia’s use of energy as a political tool during the conflict in Ukraine.
In a client note, Westpac analysts stated that while “U.S. recession risk can occasionally impact the dollar, Europe’s energy cost crunch is a greater danger to the Eurozone growth forecast. The broader medium-term upswing of the DXY (dollar index) is expected to last for a little longer, with room for additional unwinding of pricing for ECB policy tightening.”
The European economy is facing a downturn just as the ECB is getting ready to hike borrowing costs for the first time since 2011. The U.S. Federal Reserve has been sharply raising interest rates in the meantime, and minutes from the June meeting, when policymakers tightened by 75 basis points, the most since 1994. It indicated that they were worried that rising inflation would undermine confidence in the Fed’s ability to keep it under control.
Since that meeting, as recession fears grew, investors had been hedging their bets on a protracted, aggressive tightening campaign. Still, overnight data revealed that U.S. job vacancies decreased less than anticipated in May. The next significant U.S. economic announcement will be Friday’s jobs data for June.
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