Record bets against the euro: how low could it fall amid France's fiscal crisis and Europe's energy shock?
The euro hit a 17-month low as French debt fears and Europe's energy shock weigh on the currency. Bond market stress could limit further ECB rate hikes, while analysts see scope for the euro to fall to $1.10 if the pressure intensifies.
As the euro started the year as a favored investment, it now faces a series of crises that have turned investors against it. Europe's energy crisis, combined with France's fiscal troubles, is causing the single currency to plummet to record lows. The energy shock stems from a gas blockade in the Strait of Hormuz, driving up Europe’s energy prices by over 120%.
This rising inflation has led to expectations of slower ECB rate hikes, but the ECB’s president has indicated the bar for a rate increase is now very high. Meanwhile, France's budget remains a source of uncertainty, with investors demanding higher returns on euro-denominated assets. Record short positions on the euro, worth an estimated €38 billion, signal the depth of the bearish sentiment.
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