FOREX-Dollar Reigns as Recession Fears Hit Euro, Pound Under Fire

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By Rae Wee and Alun John

SINGAPORE/HONG KONG, July 6 (Reuters) – The dollar held firm on Wednesday, holding at 20-year highs against the euro and multi-month highs against other major peers as as rising gas prices and political uncertainty rekindled recession fears and sent investors rushing back to the safe-haven currency.

The euro was at $1.0262, just a fraction above its overnight low of $1.0236, its weakest since late 2002.

The pound was also trading slightly at $1.1965 just after hitting its 18-month intraday low overnight, and the Australian dollar was under pressure at $0.6816.

“There’s no investment case for going long the euro here right now. No one is buying euros other than on exchange,” said Chris Weston, head of research at Pepperstone, a Melbourne-based brokerage firm. He pointed to a 100% rally in European gas prices over the past 16 days which he said had left the European Central Bank with a brutal act of juggling.

“You have high inflation that they have to raise rates towards, but now you have a trade deficit in Germany and declining growth. It’s not even about recession, it’s about depth and duration of this recession. ,” he said.

Traders told Reuters of a large dollar order at the start of trade in London that set off a chain reaction and accelerated the euro’s slide as it broke through its 2017 low.

The fall in the euro, combined with falling commodity currencies due to lower oil prices, left the dollar index at 106.46, just past its own 20-year high.

The euro’s decline against the pound was much more muted, however, falling just 0.2% on Tuesday as the pound was hit by further political turmoil. Prime Minister Boris Johnson’s premiership has tipped to the brink after two senior British cabinet ministers – Finance Minister Rishi Sunak and Health Secretary Sajid Javid – resigned over his leadership.

In contrast, the recently under fire Japanese yen gained some support on some safety offers, with the dollar falling 0.2% to 135.5 yen.

“So far, the yen has been the currency of choice as it sucks in the mandatory flows into safe havens,” said Matt Simpson, senior market analyst at City Index.

“Yet momentum remains weak relative to overnight moves, suggesting traders are erring on the side of caution without venturing into panic mode – in hopes that dire data out of Europe will lead not to contagion,” he added.

Bitcoin managed to avoid the turmoil, still hovering around the $20,000 level from which it was unable to break significantly in either direction over the past month.

(Reporting by Rae Wee in Singapore and Alun John in Hong Kong; Editing by Sonali Desai)

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