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Monetary outlook: the euro drops below parity with the US dollar, the pound shaken by the BoE’s recession warning

Monetary outlook: the euro drops below parity with the US dollar, the pound shaken by the BoE’s recession warning . Image – Trybex/shutterstock

euro
EUR/GBP: down from £0.85 to £0.84
EUR/USD: down $1.02 to $0.99

The euro has struggled to hold its own in recent weeks as euro sentiment has been rocked by concerns over the growing energy crisis in Europe.

Energy prices in Europe soared in August, with gas prices hitting a new record high amid fears that Russia could further cut gas flows to the continent. The EUR/USD exchange rate fell back below parity as investors feared that the energy price crisis meant that the euro zone was bound to slide into recession by the end of the year.

However, all was not bleak for the euro. Euro exchange rates recorded fleeting gains in mid-August on some positive GDP numbers and a weaker US dollar. Looking ahead, the euro is likely to face an uphill battle as long as Europe remains threatened by a gas shortage this winter. Although another 50 basis point rate hike from the European Central Bank (ECB) at its next policy meeting could help limit losses in the single currency.

Book
GBP/EUR: up from €1.17 to €1.18
GBP/USD: down $1.20 to $1.17

The pound got off to a bad start in August following the Bank of England’s (BoE) latest interest rate decision. As the BoE raised interest rates by 50 basis points – its biggest increase in 27 years – it spooked GBP investors with its accompanying forecast, warning that the UK is very likely to sink into a recession this year. The pound then traded sideways for the next two weeks as recession fears, a political leadership vacuum and growing discontent among workers offset bets for another 50 basis point rate hike from the BoE in September.

The sterling sell-off then resumed in the second half of the month amid fears over the economic impact of widespread industrial action and warnings that UK inflation could spike
above 18 percent.

The direction of the pound over the next month could be mainly shaped by the next British Prime Minister. If the economic policies put in place by Rishi Sunak or Liz Truss are not considered adequate enough to deal with the crisis in the cost of living, the pound could fall.

American dollars
USD/GBP: $0.83 to $0.85
USD/EUR: from €0.97 to €1.00

The US Dollar continued to attract support over the past month as growing fears of a global recession continued to support demand for the safe-haven currency.
However, the rise of the US dollar has not been smooth sailing. The greenback suffered a major setback with the release of the latest US consumer price index, with July figures pointing to a bigger than expected slowdown in inflation.

This drop in inflation prompted USD investors to temporarily reduce their bets on the Federal Reserve’s interest rate decision in September, before some hawkish rhetoric from the Fed revived expectations and the note’s fortunes. green.

Going forward, the US Dollar should remain well supported as fears of a global recession continue to dictate market sentiment, while
the prospect of another 75 bps rate hike from the Fed is also likely to support USD exchange rates.

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