The euro fell to its lowest level in two decades with the return of the dollar andThe possibility of the onset of a difficult winter in the region. But according to the strategists, the decline is just the beginning of a deeper decline for the currency.
The single currency fell as much as 1.1% to $0.9928 on Monday, below its two-decade low of $0.9952 reached in July – following a brief rally that pushed the euro to around $1.03 earlier this month. On Monday, the coin was trading at levels last seen in 2002, a few years following the coin’s debut. The Bloomberg Spot Dollar Index rose 0.7% to its highest level since July 15.
Morgan Stanley expects the euro to fall to $0.97 this quarter, a level not seen since the early 2000s. Nomura International has set a target for the euro at $0.975 by the end of September, following which the market may look for the level of $0.95 or maybe lower, as pressure on energy supplies increases the risks of blackouts and is likely to boost Eurozone imports.
Societe Generale currency strategist Kate Jokes wrote in a note to clients: “The end of summer will see pressure return on the euro, partly because the dollar is driven by increased demand, and in the other because the sword of Damocles hangs at the head of the European economy. And it will not go away soon, in reference to the permanent danger that the region is exposed to as a result of the energy supply crisis,” according to “Bloomberg” and seen by “Al Arabiya.net.”
Markets will be on the alert for more clarity regarding central banks’ responses to the conflicting forces of recession and price risks at this week’s Jackson Hole symposium. Federal Reserve Chairman Jerome Powell is expected to reiterate the Fed’s commitment to fighting inflation, and officials from the European Central Bank and Bank of England will join him.
According to Commerzbank Strategist Ulrich Luchtmann: “The euro is likely to be particularly vulnerable to a revision of the Fed’s fundamental outlook, as the European Central Bank has taken the second strongest possible pessimistic stance among the G10 central banks following the Bank of Japan.” He wrote in a note that he sees the EUR/USD touching 0.98 by the end of the year.
important catalyst
According to Morgan Stanley strategist David Adams, the easing in US financial conditions over the summer, despite the aggressive pace of interest rate hikes, might be another impetus for further Fed tightening, making Powell’s Jackson Hole tone a potentially important catalyst for the dollar.
Traders’ chances to chase a lower EUR may also come from this week’s European PMI data and the reading is likely to be bleak from the German IFO survey. The region is grappling with natural gas prices at record levels, with already scarce supplies dwindling due to disruptions in water transportation for essential commodities following an unusually dry summer.
The euro also hit a 7-year low once morest the Swiss franc on Monday, and further signs of a recession might lead to further weakness once morest the safe haven currency.
Goldman Sachs strategists see an opportunity for the pair to fall to the 1980s or early 1990s per euro in the event of a severe economic downturn due to limited Russian gas supplies.
For his part, head of the Middle East trading department at Saxo Bank, Yasser Al-Rawashdeh, said that what is happening in the euro price is currently related to energy and electricity prices, gas flows from Russia, fears of gas outages in winter and its impact on the European economy, especially the German one.
Al-Rawashdeh added in an interview with Al-Arabiya, today, Tuesday, that liquidity began to return to the markets following the summer holidays in Britain and America.
He explained that all eyes are on the central bank governors at their grand annual meeting next Thursday and Friday in the American city of “Jackson Hole”.
