Euro US Dollar (EUR/USD) Exchange Rate Tumbles amid Eurozone Recession Fears
The Euro US Dollar (EUR/USD) exchange rate is plummeting lower today. Strong USD demand as well as heightened Eurozone recession fears are the likely causes behind the pair’s fall.
At time of writing the EUR/USD exchange rate is at around $1.0061, which is down around -1.2% from this morning’s opening figures.
Euro (EUR) Falls as Germany Fears Gas Supply Cut-Off
The Euro (EUR) is tumbling against many of its rivals today. Recession fears have prompted a downturn to Eurozone bond yields after a drop to long-term inflation expectations. The possibility of a withdrawal of Russian gas supplies may also be causing the sharp drop in the country’s fortunes today.
Germany, the trading bloc’s largest member, remains in tenterhooks this week as repair work on the Nord Steam 1 pipeline began today.
Normally the pipe supplying Russian gas to the country is returned to operational status within 14 days. German officials are concerned that Russia could cut off the flow entirely, however.
Russia previously cut supplies to Germany by 40% last month, citing a delayed return of equipment. Economists have predicted that a complete cut-off could lead to a $195B blow to the country’s economy, and push the country closer to a recession.
Vwb Managing Director Bertram Brossardt said:
‘The abrupt end of Russian gas imports would also have a significant impact on the workforce in Germany. Arithmetically, around 5.6 million jobs would be affected by the consequences.’
US Dollar (USD) Bolstered by Aggressive Fed Rate Hike Bets
The US Dollar (USD) is being boosted against its competitors today by a risk-off market mood. Global recession fears are seeing investors increase their bets on the safe-haven ‘Greenback’.
Additionally, the US Dollar Index has soared to a fresh two-decade high today amid increased bets on aggressive rate hikes from the Fed.
Better-than-expected job figures for June last week helped to bolster expectations of further rate hikes from the Fed. Non Farm Payroll figures showed that the US added 372,000 jobs in June, whilst unemployment remained low at 3.6%.
Markets are now anticipating a 0.75% interest rate hike in July. This would mark the first back-to-back rate hike at such a pace since the 1980s. Fed policymakers also gave further signals of an aggressive approach last week.
Atlanta Fed President Raphael Bostic said:
‘I am fully supportive of moving 75 basis points. This jobs report just reaffirms that the economy is strong and that there is still a lot of momentum in the labor market, and that is a good thing.’
EUR/USD Exchange Rate Forecast: Will Climb to US Inflation Push USD Higher?
Looking ahead for the Euro, Tuesday’s fall to Eurozone and German consumer confidence could weigh on the single currency.
On Wednesday, a dip to Germany’s rate of inflation could also keep the Euro suppressed if it limits European Central Bank (ECB) rate hike bets.
Friday’s narrowing of the Eurozone’s trade deficit could help to prevent any major losses for EUR, however.
Finally, further developments surrounding repairs on the Nord Stream 1 pipeline could see further losses for the single currency.
For the US Dollar, a forecast uptick to June’s rate of inflation on Wednesday could cause upward movement in the currency amid increased rate hike bets. PPI figures remaining at 0.8% on Thursday could have a similar effect, as well as a number of speeches from Fed policymakers. Friday’s forecast recovery to US retail sales could also help to bolster USD if figures climb as forecast.