Bleeding Euro Falls To 2-year Low

04/26/2022

1 minute read

2022.04.26 16:28

The euro remains on a downswing and has extended its losses for a fourth straight day. EUR/USD has dropped below the 1.07 line for the first time since March 2020.

Euro Drenched By April Showers

April has been nasty for the euro, falling over 300 points. The Ukraine war and the hawkish Fed have been a toxic mix for the euro, as investors have dumped the currency and flocked to the safe-haven US dollar.

The war between Russia and Ukraine grinds on, and the uncertainty over Russian energy supplies to Europe and sanctions against Russia have dampened sentiment towards the euro. Tight sanctions against Russia, which have led to soaring oil prices, also affect the growth of eurozone countries. There are calls within Europe to hit Russia even harder by banning Russian energy imports.

However, Germany is understandably against such a sweeping move, given that Russia provides Germany with 25% of its oil and 40% of its natural gas, and cutting off these supplies would push Germany into a recession.

Across the pond, Federal Reserve hawkishness is also weighing on the euro. The Fed is in a hurry to roll out further rate hikes in order to contain inflation, and Fed Chair Powell has hinted strongly at a 0.50% increase at the May meeting, with possibly more such increases in the coming months.

This widening of the US/Europe rate differential weighs on the euro, which is on track to break below the 1.06 shortly.

On Sunday, President Emmanuel Macron won a decisive victory over the extreme-right Marie Le Pen by 58% to 42%. The mood in European markets was relief rather than elation, given that Le Pen, a staunch euro-skeptic, had her best showing ever. The victory of the pro-business Macron is good news for the markets, but it hasn’t stopped the euro’s slide this week.