Euro Underperforming against Dollar as Recession Fears Loom

The Euro currency is grossly underperforming against the United States Dollar amid a 1% slide today to $1.0305, the lowest level in two decades. In the year-to-date period, the Euro has shed as much as 9% of its value in what looks like the most strained first half of the year in a very long time.

The underperforming nature of the Euro is a function of the impending recession that is looming, amidst the generally distressed global economic landscape. A lot of factors have culminated in the dwindling economic situation with the Coronavirus pandemic the major cause, and further compounded by the ongoing war between Ukraine and Russia which has largely strained supply within the region.

Considering the high level of dependence of the European Union on Russian oil, the growing sanctions on the Kremlin have done all parties more harm than good. One of the most resounding effects of the growing sanctions is the skyrocketing prices of oil and gas as EU leaders continue to contemplate whether to halt demand for Russian petroleum products or not.

At the moment, there are fears that the European Union may be sliding into an inevitable recession as demand has generally been dampened. This inflationary fear is further backed by the July Sentix Economic Index on Monday showed investor morale across the 19-country eurozone has plunged to its lowest level since May 2020.

The Eurozone’s inflation data came in at 8.6% in June, a figure that has prompted the European Central Bank (ECB) to give advance notice to market stakeholders of its intentions to hike interest rates. Should it increase interest rates, it will be the first time in about 11 years since the apex bank will be raising interest rates.

Euro Region Recession Fears: a Global Trend

That the Eurozone is on the brink of a recession is not peculiar to the European Union as the same economic conditions that are affecting the region are also taking a toll on other advanced economies.

In the United States, the Consumer Price Index (CPI) data for the month of May came in at 8.6%, the highest level since 1981. This high inflation figure pushed the Federal Reserve to increase its interest rate by 75 basis points in June, its most aggressive rate hike in more than 28 years.

There are no signs that the inflation is abating, and with key data set to be released later this month, the Feds will be able to gauge exactly what is needed for the ailing economy ahead of its upcoming crucial meetings later this month.

A continuous rate hike without a corresponding effect on the demand and supply in the economy is a recipe for recession, one which many market stakeholders are keenly watching at this time. Besides the EU and the US, other regions around the world are also facing major macroeconomic headwinds, one that may also degenerate into recession in no time.

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