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Euro US Dollar (EUR/USD) Exchange Rate Falls as Eurozone Energy Crisis Intensifies

Euro US Dollar (EUR/USD) Exchange Rate Drops amid Eurozone Recession Fears

The Euro US Dollar (EUR/USD) exchange rate is tumbling today amid increased fears of an imminent Eurozone recession.

The currency pair could see losses limited by a surprise fall to US second quarter growth, however. The figures have seen the US economy enter a ‘technical recession’.

At time of writing the EUR/USD exchange rate is at around $1.0155, which is down roughly -0.5% from this morning’s opening figures.

Euro (EUR) Slides as Gazprom Cuts Gas Supplies to 20%

The Euro (EUR) is tumbling against its competitors today amid fresh fears of a Eurozone recession. Fears of an energy crunch across Europe this winter are likely weighing heavy on the single currency.

In a further escalation between Russia and the European Union, supplier Gazprom cut gas supplies through the Nord Stream 1 pipeline on Wednesday. Only 20% of the pipeline’s full capacity is currently in use.

Political instability in Italy may also be pulling the Euro lower today. After the collapse of the country’s government last week, Italian voters now face an early election. Snap polls have suggested that a collation of the country’s centre-right parties may secure victory.

The Euro could see some losses limited by an unexpected rise to July’s rate of inflation in Germany, the trading bloc’s largest member. The figures could prompt bets on the necessity of further interest rate hikes from the European Central Bank (ECB).

US Dollar (USD) Trends Higher Despite Signs of Technical Recession

The US Dollar (USD) dropped against some of its key rivals today after GDP figures signalled that the US had entered a technical recession in the second quarter of 2022. USD is struggling against its safer competitors including the Japanese Yen (JPY).

Risk-off flows have likely helped the safe-haven ‘Greenback’ to recover and the currency is climbing against the Euro (EUR).

GDP growth fell by -0.9% year-on-year versus a forecast recovery of 0.5%. The reading represents the second consecutive quarter of negative growth for the US economy.

Soaring energy prices and record-high inflation were highlighted as the primary restrictions on growth, along with a cutback in government spending.

The figures do not indicate an official recession, however. Some analysts argue that strong consumer spending and a robust jobs market make an an official recession unlikely.

The US Dollar may also be seeing losses despite a 0.75% interest rate hike from the Federal Reserve on Wednesday. Dovish comments from Fed Chair Jerome Powell may be weighing on the currency, however. Powell signalled that further rate hikes would be ‘data-dependent’ and decided on a meeting-by-meeting basis.

EUR/USD Exchange Rate Forecast: Will Fall to Growth Increase Eurozone Recession Fears?

Looking ahead for the Euro, the single currency could see mixed movements on Friday. A forecast uptick to Germany’s rate of unemployment could help to bolster EUR if investors read it as signs of a tight labour market.

On the other hand, a predicted downturn to German and Eurozone GDP could weigh on the currency and add to Eurozone recession fears. A forecast downturn to Eurozone may also prompt a drop to EUR if it causes markets to reduce bets on further interest rate hikes from the ECB. For the US Dollar, a rise to the PCE price index could help the currency to recover. Investors may see signs of a rise in the Fed’s preferred measure of inflation as evidence of further interest rate hikes.