Euro trades at two-decade low against greenback, and it could slide further

Traders work the ground of the New York Stock Exchange throughout morning buying and selling on August 15, 2022 in New York City.

Michael M. Santiago | Getty Images

The euro traded at a two-decade low of 0.9903 against the U.S. greenback Tuesday morning, with analysts predicting the only foreign money will proceed to slide.

“Our outlook and our trades and our position on the strategist side are definitely biased towards further euro depreciation from where we are now,” Luis Costa, head of CEEMEA technique at Citibank, advised CNBC’s “Squawk Box Europe” on Tuesday.

“This is the primary point of euro vulnerability now,” Costa mentioned. 

There are a number of components at play when evaluating the euro and the greenback, working in tandem with the continuing battle in Ukraine and mounting inflation throughout each areas.

Wholesale gasoline costs in Europe rose sharply on Monday after Russia introduced unscheduled upkeep on its major pipeline to Germany, Nord Stream 1, whereas warmth waves have put extra pressure on power provides.

For the complete image, you additionally must look past Europe and the United States, says Costa.

“Let’s not forget there is an additional layer of complexity here from the China slowdown which obviously hits Europe with a much higher magnitude when compared to the impact in the States,” he mentioned.

China missed GDP expectations with progress of simply 0.4% within the second quarter. The world second-largest economic system has struggled with the aftermath of the nation’s worst Covid-19 outbreak for the reason that begin of 2020.

Until May, markets had been “considering hawkish flight paths” for the European Central Bank and the Bank of England, based on Costa, however these plans have “imploded” in latest months. 

“Talking about ECB liftoff… It’s absolutely glaring that ECB room to lift rates will be minimal,” he mentioned.

Global finance establishment ING’s Roelof-Jan Van den Akker made related predictions on CNBC’s “Squawk Box Europe” final week, suggesting a widening within the rate of interest differential between the U.S. greenback and the euro, in addition to a further weakening of the only foreign money.

“[The dollar] broke below the 103.60 support level. That’s a very crucial horizontal support … And I suggest that there’s further downside potential to go. Longer-term target of between $0.80 to $0.75 in the coming months,” Van den Akker mentioned.

“It confirms there is dollar strength as well as euro weakness,” he advised CNBC.

The predictions echo considerations that inflation will proceed to rise and {that a} recession in Europe is now unavoidable.

The greenback’s energy could not final although, based on Societe Generale Macro Strategist Kit Juckes.

“Maybe, all in all, the dollar rally has run about as far as it can on the current news,” he wrote in an e mail Tuesday morning.

“That’s not to say Europe’s energy woes, China’s economic weakness and policy easing, and US jobs/inflation data can’t send it further, but when I read that buying the dollar is ‘the easiest trade in FX’ the hairs on the back of my neck warn me to be careful,” Juckes wrote.

And Europe ought to have the ability to get well from these “woes,” based on the strategist.

“I still can’t see how it can rally much on anything other than short covering, but if risk markets don’t interfere, the euro can find a base here,” he wrote.

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