Euro US Dollar (EUR/USD) Exchange Rate Muted as Recession Fears Dent Market Mood
The Euro US Dollar (EUR/USD) exchange rate is trading close to a 20-year low this morning as global recession fears bolster the safe-haven US Dollar (USD).
At the time of writing the EUR/USD exchange rate is trading at around $0.9689, roughly the same as this morning’s opening rate.
Euro (EUR) Falls as Business Sentiment Drops
The Euro (EUR) remains under pressure this morning as Germany’s Ifo business climate data revealed a larger-than-forecast fall in confidence.
The indicator fell from 88.6 to 84.3 in September, which is the fourth consecutive drop, and the lowest business confidence has been since May 2020, with businesses concerned about a winter recession.
The latest data follows last week’s troubling PMIs. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
‘A eurozone recession is on the cards as companies report worsening business conditions and intensifying price pressures linked to soaring energy costs.’
Adding pressure to the single currency are developments within Ukraine as Vladimir Putin attempts to mobilise 300,000 troops to shore up his invading army. Meanwhile, the US has stated it will act ‘decisively’ should Russia use nuclear weapons, stoking fears of a potential escalation
US Dollar (USD) Strong as Global Recession Fears Weigh on Investors
The US Dollar (USD) is holding the high ground this morning amongst its peers as a risk-off market mood boosts the currency’s appeal.
Several factors are weighing on risk appetite today. Including global recession fears, continued conflict within Ukraine, and the fire sale of UK assets since Friday’s mini-budget.
With central banks around the world hiking interest rates to reduce inflation, global investors are flocking to the safe-haven ‘Greenback’ as the likelihood of a worldwide recession increases.
David Brown, Chief Executive of New View Economics, wrote this morning:
‘[I]nvestors are running for cover from stocks, bonds and peripheral currencies. Recession is beckoning, inflation and interest rates are heading higher and global economic confidence is ebbing away.’
Euro US Dollar Exchange Rate Forecast: EUR to Recoup Losses via Lagarde Speech?
Looking ahead, the Euro US Dollar exchange rate could see some significant movement this afternoon as European Central Bank (ECB) President Christine Lagarde is due to speak.
The ECB has recently aggressively raised interest rates to curb inflation. Any hawkish comments or hints about further monetary tightening could see EUR benefit. However, dovish comments from Lagarde create further headwinds for EUR.
EUR investors will also likely remain sensitive to headlines from Ukraine as referendums in occupied territories on joining Russia continue. If the Ukrainian territories are absorbed into the Russian Federation, this could increase the threat of an escalation, which will likely cause further headwinds for the single currency.
USD investors will have their eyes on speeches from three Federal Reserve policymakers. If the Fed officials are hawkish, which would be in keeping with recent Fed rhetoric, this could bolster USD further.
