The euro suddenly collapsed against the US dollar, Swiss franc, Japanese yen, and other major currencies in mid-European session this Friday.
The euro exchange rate suddenly collapsed against the US dollar, Swiss franc, Japanese yen, and other major currencies in the middle of the European session this Friday (19/November).
The trigger was the Austrian government's decision to impose a full lockdown from Monday, possibly for another 20 days.
EUR/USD plunged to a new 16-month record low at 1.1249 on concerns that other Eurozone member countries would adopt similar policies.
The euro-dollar has moved back to the range of 1.1312 as it enters the New York session, but the euro is still likely to be under pressure in the forex market. EUR/JPY and EUR/CHF each weakened around 1 percent.
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| EUR/USD Daily chart |
"Austria's announcement that they are entering a full lockdown may spoil the mood... The announcement comes just hours after Germany announced new restrictions for unvaccinated people as cases of the virus (COVID-19) surged in various parts of Europe," said Raffi Boyadjian , investment analyst from XM.com
The market reaction to the Austrian government's next announcement was predictable.
Safe haven currencies immediately outperformed the higher risk currencies.
The US dollar index even retested the 96.00 threshold which it failed to break earlier this week .
The euro's weakness stems from two main concerns. The surge in COVID-19 cases and the imposition of subsequent lockdowns could hamper the eurozone's economic recovery.
On the other hand, ECB President Christine Lagarde has reminded the importance of maintaining a loose monetary policy so as not to hinder the economic recovery.
Consequently, the gap in interest rate expectations between the euro and the US dollar has widened.
"Further acceleration in cases across Europe in the coming weeks will likely raise expectations for the eurozone's underperforming economy further compared to the US and weigh on EUR/USD," said Matthew Hornbach, macro strategist at Morgan Stanley.
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