Top Stories
Euro plunges on Italian politics, energy concerns
Global Banking & Finance Review®
Company
By Karen Brettell
NEW YORK (Reuters) – The euro plunged below parity to a 20-year low on Thursday as concerns over an energy crisis and political turmoil in Italy dented demand for the single currency, while the U.S. dollar was boosted by expectations of aggressive Federal Reserve rate hikes.
Italian Prime Minister Mario Draghi’s coalition government risked collapse on Thursday after the 5-Star Movement, one of its members, failed to support a parliamentary confidence vote including measures to offset the cost of living crisis.
The European Commission also cut its forecasts for economic growth in the euro zone for this year and next and revised upward its estimates for inflation on Thursday largely due to the impact of the war in Ukraine.
The euro plunged as far as $0.99520, the lowest since Dec. 2002. The dollar index jumped to 109.29, the highest since Sept. 2002.
“There’s clearly a broader preference for the dollar in the markets at the moment given the broader context of ongoing geopolitical uncertainty, the pressures in Europe from the energy supply situation and expectations of interest rate rises in the U.S.,” said Shaun Osborne, chief FX strategist at Scotiabank.
Traders have ramped up bets that the Federal Reserve will be even more aggressive in hiking rates after data on Wednesday showed that U.S. annual consumer prices jumped 9.1% in June, the largest increase in more than four decades.
Fed funds futures now indicate a 71% chance of a 100 basis points hike at the Fed’s July 26-27 meeting, with a 29% chance of a 75 basis points increase also priced in.
Data on Thursday showed that U.S. producer prices increased more than expected in June amid rising costs for energy products, but underlying producer inflation appeared to have peaked.
The dollar also jumped to a 24-year high against the Japanese yen as the Japanese central bank maintains a dovish stance that contrasts with hawkish moves by central bank peers globally.
The dollar was last up 1.22% at 139.23 yen.
The Canadian dollar slipped a day after the Bank of Canada raised its benchmark interest rate by a full percentage point, surprising markets with its biggest rake hike since 1998.
The currency move may be because aggressive rate increases are also adding to fears that they will hurt economic growth, said Osborne.
“Investors are concerned that potentially the Bank of Canada is moving too fast, too quickly, there are thoughts that a policy mistake is being made here with a 100-basis-point increase given the housing sector vulnerabilities,” Osborne said.
The greenback gained 1.46% against the loonie to C$1.3169.
The Australian dollar also dropped, hitting a two-year low on concerns about global growth.
The Aussie fell as low as $0.66825, the lowest since May 2020.
========================================================
Currency bid prices at 9:56AM (1356 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 108.9800 108.2700 +0.67% 13.921% +109.2900 +108.1900
Euro/Dollar $0.9977 $1.0059 -0.78% -12.21% +$1.0066 +$0.9952
Dollar/Yen 139.1150 137.4350 +1.22% +20.84% +139.3800 +137.3550
Euro/Yen 138.81 138.19 +0.45% +6.51% +139.7700 +138.0000
Dollar/Swiss 0.9853 0.9792 +0.61% +8.00% +0.9885 +0.9789
Sterling/Dollar $1.1795 $1.1895 -0.84% -12.78% +$1.1892 +$1.1761
Dollar/Canadian 1.3169 1.2979 +1.46% +4.15% +1.3223 +1.2975
Aussie/Dollar $0.6697 $0.6759 -0.90% -7.86% +$0.6787 +$0.6683
Euro/Swiss 0.9830 0.9845 -0.15% -5.21% +0.9885 +0.9828
Euro/Sterling 0.8457 0.8459 -0.02% +0.68% +0.8476 +0.8441
NZ $0.6074 $0.6132 -0.91% -11.24% +$0.6133 +$0.6062
Dollar/Dollar
Dollar/Norway 10.3085 10.2030 +1.06% +17.04% +10.3500 +10.1960
Euro/Norway 10.2916 10.2586 +0.32% +2.78% +10.3080 +10.2360
Dollar/Sweden 10.6273 10.5527 +0.01% +17.85% +10.6646 +10.5311
Euro/Sweden 10.6042 10.6030 +0.01% +3.61% +10.6367 +10.5918
(Reporting by Karen Brettell; editing by Jonathan Oatis)
The euro is the official currency of the Eurozone, used by 19 of the 27 European Union member states. It was introduced in 1999 and is symbolized by €.
Currency hedging is a financial strategy used to protect against potential losses due to fluctuations in exchange rates. It often involves using financial instruments like options or futures.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to keep the economy stable.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central bank policies and economic conditions.
Explore more articles in the Top Stories category
