The euro continued to trade below parity with the US dollar on Tuesday, hitting a new 20 year low as fears grow over a possible recession in the Euro block and according to a growing number of Analysts, the slide in the European currency is far from over.
The single currency, which has only been around since 2002, fell to $0.9910 Tuesday morning, but ]has managed to recover some lost ground in today’s trading session.
The euro previously fell to below parity with the greenback in early July and has fallen by more than 12 percent against the dollar this year as households and businesses are squeezed by record inflation which hit 8.9 percent in July up from 8.6 percent in June and 8.1 percent in May
On Tuesday, S&P Global's flash composite Purchasing Managers' Index showed that Germany's private sector economy fell further in August coming in at 47.6 from July's final reading of 48.1which is the fastest fall in business activity since June 2020 which only adds to fears that a recession is looming.
“When we look at the dollar against the euro, the strength of the dollar index becomes even more prominent. This is because euro is the currency that is getting battered by traders as they believe that the eurozone is going to face a lot more difficult time and recession is not avoidable here,” said Naeem Aslam, chief market analyst at Avatrade.
He also noted that traders are betting that the US Federal Reserve Bank is going to stay on a hawkish monetary policy path, with interest rates in the US expected to continue moving higher, which the European Central Bank is unlikely to match due to the slowing economic activity in the eurozone.
The US central bank raised interest rates by 75 basis points in its past two meetings and is expected to do so again when it meets from September 20 to September 21.
“When we look at the dollar against the euro, the strength of the dollar index becomes even more prominent. This is because euro is the currency that is getting battered by traders as they believe that the eurozone is going to face a lot more difficult time and recession is not avoidable here,” he added.