The euro has tumbled to a five-year low against the US dollar as investors bet the European Central Bank will struggle to match the pace of monetary tightening across the Atlantic, particularly as the war in Ukraine casts a shadow over the bloc’s economic recovery.
The European common currency fell further on Wednesday morning after hitting its weakest point since April 2017 late in the prior New York session, according to Refinitiv data. It has declined steadily since early February as traders responded to increasingly hawkish signals from the Federal Reserve, which is expected to raise interest rates rapidly as it fights soaring inflation.
While markets have also begun to price in an end to ultra-loose monetary policy in the eurozone, the ECB is expected to tread carefully, given the threat to the region’s economy from soaring energy prices that could worsen if the bloc decides to place sanctions on Russian oil and gas exports.