Euro slumps on gas shortage fears, US dollar firms amid global recession concerns

Euro slumps on gas shortage fears, US dollar firms amid global recession concerns. LiliGraphie/Shutterstock.com

The euro fell back through July, the single currency coming under notable pressure amid concerns over European energy security and the potential knock-on impact on the Eurozone economy.

Euro

EUR/GBP: Down from £0.86 to £0.85

EUR/USD: Down from $1.05 to $1.02

The euro fell back through July, the single currency coming under notable pressure amid concerns over European energy security and the potential knock-on impact on the Eurozone economy.

This came amid heightened fears that Russia could completely cut off gas exports to the continent, forcing countries in the EU to start gas rationing and likely tipping the Eurozone economic into a recession in the process. The resulting EUR selling bias saw the EUR/USD exchange rate even briefly hit parity.

The European Central Bank’s (ECB) latest interest rate decision also infused volatility into the euro as the ECB shocked markets with a 50bps rate hike this month, but struck a cautious tone in its forward guidance.

Looking ahead, it’s likely the focus for EUR investors will remain on Europe’s energy outlook, with the euro poised to extend its downtrend if Russia continues to restrict gas flows to the continent.

Pound

GBP/EUR: Up from €1.16 to €1.17

GBP/USD: Down from $1.22 to $1.20

The pound fluctuated over the past month, largely as a result of some notable UK political uncertainty. This was focused at the start of July as a dramatic 48 hours saw dozens of ministers resign from government and ultimately force Boris Johnson to resign as Prime Minister.

After briefly buoying Sterling as his resignation brought an end to weeks of speculation over his future. The subsequent start of the Conservative leadership race created fresh uncertainty and infused volatility in GBP exchange rates through the remainder of the month.

The end of July saw Sterling mount a recovery amid speculation the Bank of England (BoE) may be more aggressive in August, although these gains were tempered by some mixed UK economic data.The BoE’s next rate decision will act as a key catalyst of movement in the pound in August. Will a 50bps rate hike help to propel Sterling higher?

US Dollar

USD/GBP: Up from $0.81 to $0.83

USD/EUR: Up from €0.94 to €0.98

The US dollar enjoyed notable support over the past month as growing fears of an impending global recession bolstered demand for the safe-haven currency.

The first half of July also saw USD exchange rates bolstered by stronger-than-expected US payroll and inflation releases.

The upbeat data sparked speculation the Federal Reserve might raise interest rates by 100bps at its next meeting. However, the ‘greenback’ quickly fell back from its best levels as investors scaled back their rate hike bets following some cautious comments from Fed policymakers.

The US dollar was also knocked by the latest US PMIs after they reported a shock contraction in the US service sector in June.

Going forward the US dollar is well positioned to resume its bullish run through

August, so long as global recession concerns persist. Currencies Direct have helped over 325,000 customers save on their currency transfers since 1996.

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