FOREX-Euro weakens as energy woes cast shadow on outlook

FOREX-Euro weakens as energy woes cast shadow on outlook

TOKYO Reuters - The euro hovered near a two-decade low against the dollar on Thursday as Europe's energy woes cast a long shadow over the economic outlook.

The euro was flat at $1.01845 after falling as low as $1.01615 on Wednesday, for the first time since late 2002.

The dollar index - which measures the currency against six peers including the euro, sterling and yen - held close to a 20 year peak at 107.27 reached overnight, last changing hands at 107.03.

Germany's Chancellor Olaf Scholz said the country had to move faster in its green energy transition, with Russia using energy as a political weapon during the war in Ukraine.

The U.S. recession risk will periodically undercut the dollar, but the energy cost squeeze is a greater threat to the Eurozone growth outlook, wrote Westpac strategists in a client note.

The dollar index's broader medium-term uptrend likely persists for a while, with scope for further unwinding of pricing for ECB policy tightening. Thicken clouds over the European economy come just as the European Central Bank is preparing to raise borrowing costs for the first time since 2011.

The minutes of June's meeting revealed that policy makers tightened by 75 basis points, the most since 1994, that the Fed's ability to control it would be erased by worsening inflation, as the U.S. Federal Reserve hiked rates aggressively.

Since that meeting, investors had been paring bets for a prolonged aggressive tightening campaign, but data showed that U.S. job openings fell less than expected in May, pointing to a tight labor market that could keep the Fed on the offensive.

Friday's jobs report will be the next major U.S. economic release. Economists polled by Reuters expect employers to have added 268,000 non-farm payrolls during the month.

On Thursday, the yield fell to 2.904% from a high of 2.935% overnight, but fell to a more than one-month low of 2.746% due to conflicting signals over the policy outlook.

The dollar-yen rate, which is extremely sensitive to changes in long-term U.S. yields, dipped 0.07% to 135.79 yen, consolidating around that level after pulling back from a 24 year high at 137.00 at the end of last month.

Analysts think the pair will stay above 130 by the end of the year, but only seven of the 61 respondents think it will be weaker than it is now, with four of those predicted a surge to 140, according to a Reuters poll.

The pound was close to a two-year trough, with British Prime Minister Boris Johnson fighting to keep his job amid growing rebellion within his party.