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Euro Trades at Record Low Against Dollar

Euro Trades at Record Low Against Dollar

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The euro traded against the US dollar at 0.9903 Tuesday morning, a two-decade low, and analysts told CNBC’s “Squawk Box Europe” it would continue to slide. Citibank expert Luis Costa said:

Our outlook and our trades and our position on the strategist side are definitely biased towards further euro depreciation from where we are now.

Factors in dollar growth

Inflation in Europe and the US and the war in Ukraine are working in tandem to bring the euro down. On Monday, wholesale gas prices in Europe skyrocketed after Russia announced unscheduled maintenance on Nord Stream 1, its main pipeline to Germany. Heat waves are putting further pressure on energy supplies.

China’s role

According to Costa, one needs to look beyond these two regions for the full picture. China’s decelerating economy adds a layer of complexity, hitting Europe worse than the US. In the second quarter, China’s GDP grew by just 0.4%, missing expectations. The second-biggest economy in the world is suffering in the aftermath of the worst Covid-19 outbreak in the country since the start of 2020.

Costa told CNBC that markets were “considering hawkish flight paths” until May for the Bank of England and the European Central Bank, but these plans have been abandoned.  

Further weakening of euro expected

According to ING expert Roelof-Jan Van den Akker, further weakening of the euro can be expected. He suggested that the interest rate differential between the two major currencies would widen, saying:

The dollar broke below the 103.60 support level. It confirms there is dollar strength as well as euro weakness.

The forecasts echo concerns that recession in Europe is inevitable and inflation will continue to rise.

Not everyone concurs, though. Kit Juckes, macro strategist at Societe Generale, believes the dollar’s strength won’t last. He wrote in an email to CNBC on Tuesday:

Maybe, all in all, the dollar rally has run about as far as it can on the current news.

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