Euro declines on recession worries

Key Movers

The euro ended last week as the worst performing currency globally on increasing worries of a deeper and longer recession in the Eurozone. The sell-off of the euro also dragged down the Swiss Franc, which ended the week as the second worst performing currency. The euro’s broad-based decline is marching towards parity against the US dollar. This was triggered by the gas and energy crisis and the prolonged Russian invasion of Ukraine. Europe is now facing the risk of a worse recession than other major economies.

The gloomy outlook is potentially tying up the European Central Banks’s hands on monetary policy normalization to combat inflation. The ECB is clear that it will hike interest rates by 25bps this month. But by the end of July, the US Federal Reserve should have delivered another 75bps, which could fuel a further decline in the EUR/USD pair.