The euro fell to its weakest level against the dollar on Tuesday in two decades and stock markets fell sharply as the health of the world economy looks set to deteriorate.
As a sign of worsening sentiment on growth prospects, the European common currency lost 1.6 percent against the dollar to $ 1.0257, its lowest point since 2002.
Vasileios Gkionakis, head of Citi’s European currency strategy, said the euro-dollar parity “seems almost inevitable now”, noting that the deterioration of the euro was driven by the prospect of further falls in stocks and a sharp rise in natural gas prices. .
In the equity markets, the Wall Street S&P 500 fell 1.8% and the Nasdaq Composite, with a lot of technology, fell 1.9%. The Stoxx Europe 600 European regional index fell 1.9% and the London FTSE 100 by 2.3%.
Added to the feeling of sadness, futures contracts linked to TTF, the European wholesale price of gas, rose by almost 5% to a maximum of four months, as it emerged that the Norwegian Equinor was temporarily closing three fields. of oil and gas after workers went on strike. Norway has warned that gas exports to the UK could close this weekend if the situation escalates.
Jane Foley, head of Rabobank’s foreign exchange strategy, said the fall in the euro was mainly due to rising European gas prices. “Strikes in Norway certainly don’t help and I think it’s the layer of these risks that makes it increasingly difficult to be more optimistic,” he said.
“The dollar is still this major safe haven… And that’s a worsening factor [euro] movement. People want dollars in times of stress and anxiety, ”he added.
Guilhem Savry, head of macro and dynamic allocation at Unigestion, suggested that stock markets should fall even further. “The issue of recession is back,” he said. “While markets are now starting to trade in a cooling of central bank inflation and brutality, we still need to reach the lows of equity markets where we feel comfortable to re-engage risk.”
German government debt rebounded on Tuesday, and the Bund’s 10-year yield, seen as an indicator of eurozone-wide lending costs, fell 0.14 percentage points to 1.2%. The two-year yield fell 0.17 percentage points to 0.46%.
Elsewhere, the yield on the 10-year U.S. Treasury note lost 0.09 percentage points to 2.81%. Bond yields fall as their prices rise.
Bond yields and Treasury bonds had risen earlier this year as the European Central Bank and the US Federal Reserve signaled aggressive interest rate hikes and the expected withdrawal of large bond-buying programs for try to cope with scorching inflation.
The Fed raised its benchmark rate by 0.75 percentage points in June, its largest increase since 1994.
But in recent weeks investors have lowered their expectations about the extent to which the world’s most influential central bank will increase lending costs in the coming months, amid growing evidence of an economic slowdown.
Futures markets indicate that the Fed is now expected to raise rates to 3.3% in early 2023, below projected three weeks ago by 3.9%.
Details of the Fed’s most recent monetary policy meeting, to be released on Wednesday, may give more clues as to how far the central bank is willing to tighten monetary policy. A closely monitored U.S. job report on Friday will also indicate the level of heat in the country’s labor market, a criterion that could also influence the Fed’s decision-making.
Additional report by Nikou Asgari