The euro touched a fresh 20-year low in relation to the US dollar, during early Wednesday trading. The weakness of the single currency relative to the greenback is being driven by two parallel narratives. On one side the rampant dollar, supported by the Federal Reserve’s hawkishness and the currency’s safe haven appeal, has been increasing its dominance of the foreign exchange markets over the last few months. On the other hand, the situation in Europe is not helpful for the single currency. Despite the ECB’s recent shift towards a more assertive posture regarding the need to control inflation and tighten monetary policy, the euro continues to languish in relation to the almighty dollar. The war in Ukraine presents many risks for the old continent, both in the geopolitical and economic sphere, and the recent escalation related to the sabotage of the Nordstream pipelines, it appears that Europe may be about to face a very difficult winter. Against this background further euro weakness may be on the cards.
