FOREX-Euro slumps to two-decade low as recession fears bite

BY Reuters | TREASURY | 07/05/22 05:20 AM EDT

* Euro drops to lowest since end of 2002 as concerns build

* Dollar rises as Treasury yields rebound

* Yen near 24-year lows again

* Aussie dollar fails to gain traction after 50 bps rate hike

By Marc Jones

LONDON, July 5 (Reuters) - The euro slumped to a two-decade low on Tuesday as the latest surge in European gas prices added to worries about a recession, while there was no stopping the dollar as U.S. Treasury yields staged a rebound.

Swathes of currencies were under pressure. The euro's 0.8% early drop took it to its weakest since the end of 2002, Japan's yen was near 24-year lows again, while Norway's crown slumped 1% as its gas workers went on strike.

MUFG's head of global markets research, Derek Halpenny, said the risks of Europe backsliding into a recession looked to be growing after another big 17% jump in natural gas prices in both Europe and in Britain.

Concerns about how the European Central Bank will react were also gnawing at sentiment after German Bundesbank chief Joachim Nagel had hit out at the ECB's plans to try and shield highly indebted countries from sharp rises in borrowing rates.

"It will continue to be very difficult for EUR to rally in any meaningful way with the energy picture worsening and risks to economic growth increasing notably," said MUFG's Halpenny.

Even the Australian dollar failed to gain traction despite the country's first back-to-back 50 basis point interest rate hike in recent memory overnight, which also cemented the fastest run up in rates there since 1994.

The Aussie ticked 0.09% lower to $0.6820, after trading as high as $0.6895 earlier in the day.

"We have had so many central banks hiking in these big increments that you are now getting talk of reverse currency wars," said Rabobank FX strategist Jane Foley, referring to where central banks need to hike rates just to stop their currencies from falling.

"It could get concerning" for a number of currencies she added, especially if the U.S. Federal Reserve pushes ahead with large rate hikes in the coming months as expected.

The dollar's strength, meanwhile, sent the yen back down toward a 24-year low. It was last at 135.79 per dollar .

(Reporting by Marc Jones; Editing by Jacqueline Wong)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article