Monthly Wrap: EUR – Euro falls amid recession fears, shock ECB rate hike also stokes volatility
Philip McHugh July 28th 2022 - 2 minute read
By Philip McHugh on July 28, 2022
Key takeaways:
- ECB raises interest rates for first time in 11 years.
- Euro hits parity against US dollar amid recession fears and energy shortage.
- EUR monthly highs: £0.86, $1.06, AU$1.53, NZ$1.69, C$1.36
- EUR monthly lows: £0.84, $0.99, AU$1.46, NZ$1.62, C$1.30
The euro saw significant losses over the past month. Fears of a potential Eurozone recession as well as gas supply concerns weighing heavily on the single currency.
A narrowing in Germany’s trade surplus as well as poor performance in the Eurozone’s private sectors saw the currency begin its fall at the beginning of July.
Fears of an energy crisis across Europe the accelerated the EUR selloff. The Nord Steam 1 gas pipeline, one of the continent’s primary supply lines, was shut down for maintenance on 11 July. Officials remained concerned that Russia would supplies cut-off in response to Western sanctions.
These factors contributed to the euro hitting parity against the US dollar as the weeks went on. The one-to-one exchange rate was last hint in December 2002.
The European Central Bank’s (ECB) decision to hike interest rates by 0.5% helped the euro to recover some of its losses toward the end of July. Figures in the days prior had shown inflation in the Eurozone reaching a record 8.6% in June.
Gains at the end of the month were limited after Russian gas giant Gazprom confirmed that they would be cutting flows to Europe. Gazprom initially restricted supplies by 40%, and then confirmed that they would be reducing flows by an additional 50% on top of the initial cut. Gazprom officials cited maintenance issues for the cuts.
The euro made further losses at months end after the IMF slashed growth forecasts for the Eurozone amid the war in Ukraine.
Looking to the month ahead, further rises to inflation could bolster expected for more aggressive rate hikes from the ECB and lift the euro.
Further tensions between Europe and Russia over gas supplies could cap gains, h
Written by
Philip McHugh