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Euro lingers around 20-year low amid fears of a recession

Image: Reuters Berita 24 English - As Europe 's energy problems cast a lengthy shadow over the economic future, the euro was trading nea...


Image: Reuters

Berita 24 English - As Europe's energy problems cast a lengthy shadow over the economic future, the euro was trading near a two-decade low against the dollar on Thursday.

After hitting a low of $1.01615 on Wednesday for the first time since late 2002, the euro was roughly flat at $1.01845.

The dollar index, which compares the US dollar to six other currencies, including the euro, sterling, and yen, maintained close to a 20-year high of 107.27 overnight, last trading at 107.03.

Olaf Scholz, the chancellor of Germany, declared that due to Russia's use of energy as a political tool during the conflict in Ukraine, the country must move more quickly toward a green energy future.

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 darker skies just as the ECB is getting ready to hike borrowing prices 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 policy makers tightened by 75 basis points, the most since 1994, showed that they were worried that rising inflation would undermine confidence in the Fed's ability to keep it under control.

Since that meeting, investors had been hedging their bets against a protracted, aggressive tightening campaign as recession fears increased. However, overnight data revealed that the number of job openings in the United States fell less than anticipated in May, indicating a still tight labour market that may keep the Fed on the attack.

Friday's jobs data for June will be the following significant U.S. economic announcement. According to economists surveyed by Reuters, companies should have increased non-farm payrolls by 268,000 during the month.

As a result of mixed signals regarding the policy future, the benchmark 10-year Treasury yields dropped to 2.904 percent in Tokyo trading on Thursday from as high as 2.935 percent overnight.

The dollar-yen exchange rate, which is highly responsive to changes in long-term U.S. yields, fell 0.07 percentage points to 135.79 yen and has been circling there since retreating from a 24-year high of 137.00 at the end of last month.

According to analysts, the pair will remain over 130 by year's end. However, only seven of the 61 respondents said that it would decline from its current level, with four of them projecting a rise to 140, according to a Reuters poll.

British Prime Minister Boris Johnson battled to preserve his position amidst a growing mutiny within his party as the pound languished near a two-year low.

Investors also took in the well-balanced remarks of Huw Pill, the chief economist of the Bank of England, who stated that while he was prepared to speed up rate increases depending on the economic data, he preferred a "steady-handed" strategy to "one-off big movements" that could "be disconcerting."

After falling overnight to its lowest level since March 2020 at $1.1877, the pound was barely changed at $1.1924. 

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