Traders are showing the most pessimistic sentiment towards the euro since Russia's full-scale invasion of Ukraine four years ago. The protracted war in the Middle East is provoking a jump in energy prices, which creates critical risks for the European economy and puts pressure on the common currency. This is reported by Bloomberg, writes UNN.
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The euro exchange rate fell to $1.1507, which is the lowest indicator against the dollar in the last four months. Option market indicators show that bearish sentiment currently corresponds to the panic levels of early 2022 or the Covid-19 pandemic period.
Investors are massively factoring in further weakening of the currency into their forecasts, as euro trading volumes have exceeded average indicators by 3.5 times, with most operations aimed at strengthening the US dollar.
Energy crisis and the threat of parity
The price of oil above $100 per barrel has exposed the structural weakness of the eurozone, where rising energy costs traditionally worsen the trade balance. Fears of a possible fall of the euro below parity with the dollar have reappeared on the market, as already happened in 2022.
Despite expectations that the European Central Bank will raise interest rates twice by the end of the year, traders are more concerned about the threat of stagflation – a combination of high inflation and slowing economic growth.