Euro Falls to 20-Year Low as Recession Fears Grow

Investors this week flocked to the US dollar in search of a safe haven, strengthening the greenback to levels not seen since 2002. Meanwhile, the euro slumped to 20-year lows as the latest surge in European gas prices increased recession fears. 

The Dollar Index rose 1.6% at one point and the euro fell as much as 1.75% to lows last witnessed in late 2002. It was the largest one-day drop for the euro and the dollar's biggest single-day gain since COVID-19 disrupted markets in March 2020. 

Other currencies also fell as recession fears hammered stocks in Europe and on Wall Street. The Japanese yen slumped to near 24-year lows. The Canadian dollar slid to almost two-year lows and Norway's Crown shed more than 2% as gas workers went on strike. 

The risk of Europe sliding into a recession rose after a significant 17% jump in natural gas prices in both Europe and Britain looked set to nudge inflation even higher. 

What does this mean for me? 

Investors were in a risk-averse mood with an energy crisis looming in Europe. The euro's decline is a stark warning sign about what might happen if Russia completely shuts off natural  gas transmission to Germany.

There is plenty of criticism for the European Central Bank (ECB). Analysts point out that the central bank is far behind where it needs to be with inflation. For the FOREX investor, it will be instructive to watch the ECB’s moves in the coming weeks, as well as the energy supply situation in Europe.