Euro slid to 20-year Low against USD as Recession Fears Build

The euro fell to its lowest level in two decades on Tuesday, sliding over 1% for the session to hit $1.0283. Technically, the European currency is rapidly approaching parity with the U.S. dollar, but history teaches us that every time such an event becomes realistic, the euro demonstrates “the last minute bounce”. However, for Euro to show character some motivating event has to occur. Are there any of them projectable at the moment? Hardly.

The mounting fears of a recession in the euro zone ramp up, as gas prices soar and the geopolitical knots shows no signs of abating. Most importantly, euro zone inflation hit a record 8.6% in June, prompting the European Central Bank to give markets advance notice of its intention to hike interest rates for the first time in 11 years at its July meeting.

What’s more important is that the ECB has been chronically late in its policy moves, and growing fears of a recession may limit the central bank's ability and capacity to tighten monetary policy. Record-high inflation in Europe has been abetted by skyrocketing gas prices over recent months.

Natural gas prices in Europe recently extended their violent upsurge, climbing to highs not seen since early March as planned strikes of gas field workers in Norway only amplified concerns about Russian supply cuts. The front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, was last seen trading up 7.8% to hit 175.5 euros ($180.8) per megawatt-hour.

The July Sentix Economic Index on Monday showed investor sentiment across the 19-country eurozone has plunged to its lowest level since May 2020, pointing toward the inevitability of recession.

All of these factors have converged to hit the euro hard. The currency of the eurozone has lost over 9% of its value against the dollar since the start of the year.