Euro banknote placed on U.S. Dollar banknotes
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Summary

  • Euro back at 2002 levels after gas price surge, weak data
  • Wall St futures down after U.S. holiday
  • RBA raises but Aussie falls sharply
  • Graphic: Global asset performance
  • Graphic: World FX rates

The euro plunged to a two-decade low versus the dollar on July 5 as a surge in natural gas prices revived fears about the eurozone economy and data showed business growth in the region declined rapidly in June.

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News that Norwegian offshore workers started a strike on Tuesday that will decrease oil and gas output added to worries about a European energy shortage.

The euro sank by as much as 1.3% against the dollar to $1.0281, its lowest since December 2002. In contrast to the Swiss franc, it dropped 0.9 percent to 0.9925 francs, its weakest since 2015. The dollar index soared 1.1 percent to 106.24, a two-decade high for a currency that investors are drawn to buy during times of extreme economic turmoil.

Jordan Rochester, a currencies analyst at Nomura, stated:

“Everyone is gearing up for Nord Stream to be turned off and Russia has already signaled they will use that as a weapon. So this is really hitting the competitiveness of German manufacturing. Germany has way higher manufacturing, so we are facing a supply crunch of energy, rationing, so the euro area’s competitiveness will collapse and its exports will be curtailed.”

Survey data on Tuesday showed business growth across the eurozone declined further in June and forward-looking indicators showed that the region could fall into a downturn this quarter as the cost of living crisis keeps consumers on alert.

Elsewhere, stock markets delivered early profits as the jump in natural gas prices destroyed sentiment, offsetting the previous hope about signs of relaxing U.S.-China trade tensions. After the U.S. markets were closed on Monday, trading is likely to be livelier on Tuesday and Wall Street inverted early gains and went lower by 0825 GMT.

The Germany’s DAX (.GDAXI) dropped 1% while Euro STOXX (.STOXX) fell 0.54%. The FTSE 100 also fell 1% (.FTSE).

BRIEF RESPITE

Giving brief respite to tense markets earlier was a report that U.S. President Joe Biden was inclined to a decision on reducing tariffs on goods from China along with news Chinese vice Premier Liu He had talked to U.S. Treasury Secretary Janet Yellen.

A survey showing China’s services activity expanded rapidly in about a year also helped sentiment.

Tuesday gives little in the way of economic data, but later this week the European Central Bank (ECB) and U.S. Federal Reserve disclose their minutes from the latest policy meetings, and on Friday widely anticipated U.S. payrolls data will be posted.

Grace Peters from JPMorgan Private Bank said:

“Markets are all about recession risk. Inflation has been the theme since last year but since the start of June we have started to see consumers significantly changing their behavior…The data since then whether U.S. mortgage markets or PMIs (purchasing managers’ index surveys) or consumer confidence shows that economic momentum has worsened considerably in Q2. That’s really driving cross-asset moves.”

Australia’s central bank raised rates again with a second straight 50 basis points hike. However, the Aussie dollar plunged 1.1 percent to as low as $67.82 as investors regarded the bank’s supplementary messaging to be more dovish than anticipated and as the U.S. currency advanced across the board.

In South Korea, June inflation soared to its fastest since the Asian financial crisis, triggering expectations the central bank could achieve a 50 basis point rate hike for the first time next week.

U.S. Treasury yields came back from the holiday little changed, with the yield on benchmark 10-year notes at 2.9%, below the 3%-plus levels of a week earlier.

Euro zone government bond yields dropped two to five basis points, due to uncertainty about the next step of monetary tightening by the European Central Bank and as investors fearful of the economic outlook sought security.

As economic fears reached across markets, oil prices fell in sympathy. Brent crude oil futures decreased by 1.1 percent to $112.24 a barrel after earlier trading higher, although U.S. crude oil crept 0.1% higher to 108.5 a barrel.

Spot gold fell by 0.34% to $1803 an ounce.

Bitcoin lost 2.5% to $19,706.



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