The rising dollar and the likelihood of a challenging winter for the area caused the euro to drop to a new two-decade low. Strategists predict that the currency will continue to fall after this point.
The currency declined by 1.1% on Monday, reaching a low of 0.9928, lower than the previous two-decade low of 0.9952 in July. This marks a break from the temporary reprieve that raised the euro to roughly $1.03 earlier this month. Since July 15, the Bloomberg Dollar Spot Index increased by 0.7% to reach its highest point.
According to Morgan Stanley, the euro will depreciate to $0.97 this quarter, the lowest level since the early 2000s. Nomura International Plc’s target price for the euro is $0.975 by the end of September. The market may then search for the $0.95 level or even lower as the demand for energy supplies increases the possibility of blackouts and probably increases euro imports.
In a note to clients, Kit Juckes, a foreign exchange strategist at Societe Generale SA, stated that “the end of summer sees the euro back under pressure, partly because the dollar is bid and partly because the Damoclean sword hanging over the European economy isn’t going away.”
At this week’s Jackson Hole symposium, the markets will watch for further clarification regarding central bank reactions to the competing dynamics of recessionary risks and skyrocketing prices. Along with representatives from the European Central Bank and the Bank of England, Federal Reserve Chair Jerome Powell is anticipated to reaffirm the central bank’s commitment to battling inflation.
Ulrich Leuchtmann, a strategist at Commerzbank AG, stated that “the euro is likely to be particularly susceptible for a revision of the underlying Fed assumption” because the ECB has adopted the second-strongest dovish stance among the G10 central banks, behind the Bank of Japan. He predicted in a memo that the euro-dollar pair would reach 0.98 by year’s end.
On Monday, the euro also hit a new seven-year low versus the Swiss franc, and if symptoms of a recession continue to emerge, it may lose much more ground to the safe-haven currency. Given the restricted Russian gas supply, strategists at Goldman Sachs Group Inc. believe there is a potential that the pair might drop to the mid-80s or low 90s cents per euro in a severe economic slump.
Source: Bloomberg News