Euro trades at two-decade low against dollar, and it could slide further

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Traders work on the floor of the New York Stock Exchange during morning trading on August 15, 2022 in New York City.

Michael M. Santiago | Getty Images

The euro traded at a two-decade low of 0.9903 against the US dollar on Tuesday morning, with analysts predicting the single currency will continue to fall.

“Our outlook and our trades and our position on the strategist side is absolutely geared towards further depreciation of the euro from where we are now,” Luis Costa, head of CEEMEA strategy at Citibank, told CNBC’s “Squawk Box Europe” on Tuesday.

“This is now the key point of the euro’s vulnerability,” Costa said.

There are multiple factors that come into play when comparing the euro and the dollar, along with the ongoing conflict in Ukraine and rising inflation in both regions.

Wholesale gas prices in Europe rose sharply on Monday after Russia announced unscheduled maintenance on its main pipeline to Germany, Nord Stream 1, as heat waves put additional pressure on energy supplies.

For the full picture, you also have to look beyond Europe and the United States, Costa says.

“Let’s not forget that there is an extra layer of complexity here from the slowdown in China that is clearly affecting Europe at a much greater magnitude compared to the impact in the United States,” he said.

China missed GDP expectations with growth of just 0.4% in the second quarter. The world’s second-largest economy is grappling with the aftermath of the country’s worst Covid-19 outbreak since early 2020.

Until May, markets were thinking of “hawk-like flight paths” for the European Central Bank and the Bank of England, according to Costa, but those plans have “imploded” in recent months.

“Speaking of the launch of the ECB… It is absolutely clear that the ECB’s room to lift rates will be minimal,” he said.

Roelof-Jan Van den Akker of the international financial institution ING made similar predictions last week about CNBC’s “Squawk Box Europe”, suggesting that the interest rate differential between the US dollar and the euro is widening, as well as a further weakening of the single currency.

“[The dollar] broke below the 103.60 support level. That’s a very crucial horizontal support… And I suggest there is even more downside potential. Longer term target of between $0.80 and $0.75 in the coming months,” said Van den Akker.

“It confirms that there is both a strong dollar and a weak euro,” he told CNBC.

The forecasts reflect concerns that inflation will continue to rise and that a recession in Europe is now inevitable.

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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