EUR/USD: Here’s why the euro is approaching its 20-year low

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on May 12, 2022
  • The EUR/USD pair is approaching its 20-year low.
  • Europe is now facing its worst crisis in decades.
  • There are concerns about whether the ECB will be able to hike rates.

The euro is plummeting. The EUR/USD pair crashed to a low of 1.0380, which is about 35% below the highest level since 2008. It has fallen by 16% from the highest point last year. Notably, the currency is about to fall to the lowest level in December 2002.

Euro crash continues

The EUR/USD pair continued as investors continued focusing on the ongoing energy crisis in Europe. In a statement, Moscow said that it would sanction some of energy companies that Germany took control of when the war started.

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And in aother statement, Gazprom, a state-owned company said that it would cut shipments through a major pipeline. The firm said that it will not be possible to use the pipeline because of the Russian sanctions.

As a result, natural gas prices surged to 106 euros per megawatta hour, more than quadruple levels than where they were last year.

The decision came at a time when Europe is reducing its overreliance of Russian energy. EU members are debating about measures to stop receiving Russian oil. However, they have been cautious about Russian gas since the country does not have adequate alternative sources.

Meanwhile, Ukraine’s pipeline operator decided to shut down its operations citing interferences by Russian forces, 

Why is the EUR/USD crashing?

Therefore, the EUR/USD is falling as investors price in a recession in the EU even as the ECB prepares for take-off. 

In a speech this week, Christine Lagarde hinted that the bank will start hiking rates in July. The same sentiment was shared by the president of the German Central Bank.

As such, with the possibility of a recession in Europe, it will be difficult for the ECB to hike interest rates. Doing that will lead to more weakness of the economy. The EUR/USD pair fell because of the surging US dollar. The US dollar index jumped to a multi-year high of $104.

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