Euro Hits 20-Year Low Against Dollar as Markets Slide

To tame the highest inflation since the euro was created in 1999, the European Central Bank is expected to raise interest rates for the first time in more than a decade at its meeting this month.

But as the eurozone’s economic outlook darkens, investors are concerned that the E.C.B. has moved too late, and may not have much time to raise rates before a recession forces it to change course. There are growing predictions that the eurozone economy could slip into recession, especially if energy supplies continue to be disrupted.

The Federal Reserve is expected to remain more aggressive in raising rates as it tries to cool economic growth and rein in inflation, which would make holding assets denominated in dollars more attractive than ones in euros, on top of the worries about the prospects for the eurozone economy.

“With the growth outlook softening further it seems the window for E.C.B. hikes may be closing even faster than previously anticipated,” Dominic Bunning, head of foreign exchange research at HSBC, wrote in a research note on Tuesday. That, he said, “adds up to a weak outlook” for the euro.

The euro’s slide makes imports more expensive for people and businesses in the 19 countries that use the currency, adding to the region’s inflationary woes. It also reduces the value of European sales for American companies, presenting “one more variable that investors have to be aware of on the downside for earnings,” Mr. Quinlan of Merrill and Bank of America Private Bank said.

The six months through Thursday were the U.S. stock market’s worst first half of a year since 1970, with the SP 500 peaking in early January and dropping nearly 21 percent through June. The sell-off was broad: Every sector except energy was down. The second half of the year is off to a similarly bleak start.

Eshe Nelson contributed reporting.

Article source: https://www.nytimes.com/2022/07/05/business/euro-dollar-inflation-markets.html