NEW YORK/LONDON: The euro slumped to a two-decade low on Tuesday as the latest surge in European gas prices added to the region’s recession worries, while safe-haven demand for U.S. Treasuries strengthened the dollar.
Many currencies were under pressure. The euro’s 1.5% drop took it to its weakest since the end of 2002. Japan’s yen was near 24-year lows again, while Norway’s crown tumbled 1.2% as gas workers there went on strike.
The risk of Europe sliding into a recession grew after another big 17% jump in natural gas prices in both Europe and Britain looked set to push inflation even higher.
Concerns about how the European Central Bank will react eroded sentiment after German Bundesbank chief Joachim Nagel on Monday hit out at the ECB’s plans to try to shield highly indebted countries from surging borrowing rates.
“It will continue to be very difficult for the euro to rally in any meaningful way with the energy picture worsening and risks to economic growth increasing notably,” said MUFG’s head of global markets research Derek Halpenny.
Traders told Reuters there had also been a major dollar order in early trading, perhaps as U.S. markets were closed on Monday for the Fourth of July holiday.
One said that coupled with the energy price angst it caused a chain reaction, spilling into both equity and bond markets and then speeding the euro’s fall as it broke through its 2017 low of $1.0340.
The heavy volatility also saw the euro drop to the lowest against the Swiss franc since the Swiss National Bank abandoned its currency cap in 2015. It fell against sterling too, although the pound’s own economic and political worries had left it below $1.20 again.
With the euro trading at two decade lows, volatility has jumped and trading in options has increased, said Marc Chandler, chief market strategist at Bannockburn Global Forex.
“Whether it is to play for the downside like a speculative move or whether it’s a hedge against long euros, I can’t tell you,” Chandler said.
The Australian dollar fell despite the country’s first back-to-back 50-basis point interest rate hike in recent memory overnight, which also cemented the fastest run up in rates there since 1994.
The Aussie slid 1.4% to $0.677, after trading as high as $0.6895 earlier in the day. It is now down nearly 7% this year.
