Euro nosedives as gas shortage threat reignites Eurozone recession fears

Philip McHugh July 27th 2022 - 2 minute read

The euro came under notable selling pressure on Tuesday amid fresh concerns over a Eurozone recession.

Meanwhile, the pound is struggling to find direction at the start of today’s session, with GBP/EUR flat at €1.1882 and GBP/USD stable at $1.2044. GBP/CAD is rangebound at C$1.5493, while GBP/AUD and GBP/NZD climb to AU$1.7383 and NZ$1.9356, respectively.

Centre stage today will be the Federal Reserve’s latest interest rate decision. Will a 75bps rate hike boost the US dollar or be seen as disappointing to USD bulls?

What’s been happening?

The euro took a tumble yesterday, with the single currency being undermined by renewed fears the Eurozone is at risk of a recession.

Stoking these recession fears were concerns over an EU gas shortage as Russia prepared to cut gas exports through the Nord Stream pipeline to Germany to just 20%.

The pound also trended lower on Tuesday, with Sterling sentiment being undermined by the Confederation of British Industry’s (CBI) latest distributive trades index, after July’s figures reported UK retail sales volumes declined for a fourth consecutive month.

Meanwhile, the dollar traded with modest gains yesterday as demand for the safe-haven currency was buoyed after the International Monetary Fund (IMF) slashed its global growth forecast.

What’s coming up?

All eyes will be on the Federal Reserve today as the US central bank concludes its latest interest rate decision.

The Fed is widely expected to announce another 75bps rate hike, but in light of recent speculation the bank could opt for a more aggressive 100bps hike, any upside in the US dollar may be limited unless the Fed strikes a particularly hawkish tone with its forward guidance.

Ahead of the Fed rate decision we may see the US dollar face some headwinds with the release of the latest US durable goods figures. Order growth is forecast to have contracted in June.

In the meantime, the euro is likely to face additional pressure this morning after Germany’s consumer confidence index plunged to a new record low.

Finally, with GBP data thin on the ground today, any movement in the pound may be driven by political developments. Will the ongoing uncertainty of the Conservative leadership contest weigh on Sterling sentiment?

Written by
Philip McHugh

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