Euro US Dollar (EUR/USD) Exchange Rate Slides amid Market Anxiety
The Euro US Dollar (EUR/USD) exchange rate declined this morning, hitting a two-week low, as a risk-off mood supported the safe-haven US Dollar (USD).
Meanwhile, the Euro (EUR) faces headwinds as EUR investors once again grow concerned about a Eurozone recession.
Euro (EUR) Falls amid Economic Warnings
The Euro is on the back foot today as Euro area recession fears weigh on the single currency.
One factor reviving worries of a recession is the latest employment data.
The Eurozone unemployment rate fell in May, printing at 6.6% rather than the forecast 6.8%, suggesting a stronger labour market. However, Germany’s unemployment rate for the following month unexpectedly increased from 5% to 5.3%. EUR investors seem worried that this could represent a turning point in the labour market recovery.
In addition, a report from Fitch Ratings today highlighted that dwindling supplies of Russian gas could trigger a recession. The report, titled ‘Risk of Eurozone Recession Rises as Gas Rationing Looms’, reads:
‘The likelihood of gas rationing in Europe has increased significantly following the recent disruption of Russian natural gas supplies through the Nord Stream 1 pipeline. A technical recession in the eurozone is now an increasing possibility’.
Russia has massively reduced the amount of gas its sends to Europe over the last month. Ten of the 27 EU member states declaring an ‘early warning’ – the first of three crisis levels. Most forecasters agree that a complete halt of Russian gas would plunge the bloc into a recession.
US Dollar (USD) Strengthens as Sentiment Sours
Fears of a Eurozone recession are feeding into an increasingly anxious market mood, which is in turn supporting the safe-haven US Dollar (USD).
Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown, explains:
’A sense of foreboding is again gripping financial markets, with anxiety rising that by attacking inflation, central banks risk severely weakening economies.
‘Following fresh falls on Wall Street, Asian markets retreated and European indices also opened lower. The FTSE 100 slid 1.8% with risers very few and far between.’
Amid signs that economies around the world are slowing, while inflation is surging and central banks are raising interest rates, traders are opting for safer assets, such as the US Dollar.
EUR/USD Exchange Rate Forecast: US Inflation and ECB’s Lagarde in Focus
Looking to the afternoon ahead, USD investors will be eagerly awaiting the latest inflation data from the US. Economists expect the PCE price index – the Federal Reserve’s preferred measure of inflation – to reveal a jump in headline inflation, although the core rate is set to ease. If the figures prompt markets to bet on increasingly aggressive rate rises from the Fed, USD could climb even higher.
As for the Euro, a speech from European Central Bank (ECB) President Christine Lagarde could cause some movement. Lagarde has made hawkish remarks in recent weeks, suggesting sustained action from the ECB and arguing that the Eurozone economy is unlikely to enter a recession. Can she soothe EUR investors today?
