The pound and the euro victims of fears of recession against the dollar

The pound and the euro fall victim to fears of recession against the dollar

UPDATE DAY

The pound and euro ended the week on Friday at levels not seen in decades against the dollar, with European currencies suffering from recession fears while the greenback benefits from geopolitical concerns fueled by Moscow.  

Around 8:50 a.m. GMT (10:50 a.m. Paris), the pound plunged 0.89% to $1.1161 after falling to $1.1151, a level not seen since 1985, while the euro lost 0.79% to 0.9758 dollar after falling to 0.9751 dollar, a threshold not reached since 2002.

Since the beginning of the year , against the steamroller of the dollar, the euro fell by 14% and the pound by 17%.

Directly affected by the surge in gas prices since the start of the war in Ukraine, European economies are accumulating signs of weakness.

In the euro zone, the decline in economic activity accelerated in September in the private sector, according to the PMI index. Across the Channel, the Bank of England estimates that the United Kingdom already entered recession in the third quarter.

A gloomy picture that turns investors away from the euro and the pound, despite marked rate hikes in September by central banks.

Conversely, “the United States is in a position unique, with high inflation and growth that persists better than elsewhere, which means that the US Federal Reserve (Fed) has both reasons and means to raise its rates faster and further than its peers” , explains Mark Haefele, an analyst at UBS.

“The trend of the euro-dollar pair will not change as long as risk appetite is absent from the market due to concerns about the Ukraine-Russia conflict”, which benefits the greenback, a safe haven, abounds Francesco Pesole , analyst at ING.

Referendums on annexation by Russia have begun in regions of Ukraine wholly or partly controlled by Moscow, polls described as “sham” by Kyiv and the West and which marked an escalation in the conflict.

The yen fell 0.23% to 142.72 yen, holding up a little better than the European currencies.

Thursday, the Bank of Japan maintained its ultra-loose monetary policy but the Ministry of Finance said it intervened in the foreign exchange market to support the yen.

“The move worked, but the question is how much time,” warns Ricardo Evangelista, an analyst at ActivTrades.

“Maintaining support for the yen will require an in continued intervention for an extended period and will be a test for the resolve and capacity of the Japanese authorities,” he said.