Likely European recession will push the currency further down

  • The euro is likely to fall further against the dollar, investment strategist AJ Oden told Insider.
  • High inflation, Russia’s war on Ukraine and the worsening energy crisis mean that the pressure on the euro will continue to be felt.
  • Meanwhile, the dollar has shown strength in part because the Fed is further along in monetary tightening than the ECB, he said.

The euro is set to see further declines as a series of headwinds, including an energy crisis and war, add pressure on the currency, according to an investment strategist.

At the same time, the US dollar will continue to climb as the Federal Reserve is more advanced than the European Central Bank in tightening monetary policy. This week, the euro fell below parity with the dollar.

“The ECB has tightened somewhat, but it is continuing its bond-buying program,” AJ Oden, senior investment strategist at BNY Mellon Investor Solutions, told Insider. “The Fed is doing the opposite, we’re taking money out of the system. The probability of a recession is just much higher in Europe.”

The deepening energy crisis in Europe and the continuing fallout from Russia’s war on Ukraine led investors to dump the euro and turn to the dollar, he said. And with the dual threat of new EU sanctions on Russian oil and the possibility that Russia itself will halt flows, the risks continue to mount.

“Inflation is already in double digits in Europe, and with winter approaching, there are fears that Russia will further tighten its natural gas and energy prices will rise again,” he said. declared.

Given its status as the world’s reserve currency, the greenback will hold its course and remain near 20-year highs, Oden noted, and with the Fed signaling further rate hikes, that strength against the euro will continue. will continue.

Meanwhile, Societe Generale echoed a similar sentiment this week, predicting that the energy crisis in Europe will prevent the euro from rebounding this year.

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