On Tuesday, the US dollar recorded gains against a basket of other currencies, which saw it reverse course after recording declines for three consecutive sessions.
This was because of a rise in fears of economic recession and investors looking forward to a statement from the Federal Reserve, while the euro was down because of energy supply concerns.
Energy crisis
A weakened emergency plan was approved by countries in the European Union on Tuesday, which was aimed at reducing the demand for gas.
Compromise deals had been made for limiting the gas supply cuts for a few countries, as the euro zone gears up for reductions in gas supplies from Russia.
The US dollar got a boost because of the risk-off sentiment in the markets, as US equities declined after retail giant Walmart issued a profit warning and said prices would be slashed for reducing inventory.
On Wednesday, the US Fed is expected to boost the interest rate by 75 basis points, with investors looking towards the forward guidance of the central bank, as it deals with high inflation and the possibility of a recession.
The European Central Bank (ECB) hiked the interest rates last week by 50 basis points.
Analysis
According to market analysts, none of this bodes well for the euro. It has already taken a severe beating this year and growth concerns are not going to see any improvement because it seems that the energy crisis is only going to get worse.
It is possible that investors could before nervous about the length of the recession, so they are likely to turn towards safe-haven assets like the dollar.
There was a rise in the US dollar index by 0.714%, which measures it against other currencies, and it climbed to 107.180.
As for the euro, it recorded a drop of 0.98%, which brought it down to $1.012. The euro was on course for its biggest percentage decline since July 11th.
Economic data
The latest economic data in the US showed that new home sales had declined to their lowest figure seen in the last two years, while consumer confidence dropped for the third consecutive month in July.
This indicates that the economy may be in recession. The release of an advanced reading of the gross domestic product data for the second quarter is scheduled for Thursday.
As for Friday, the personal consumer expenditures data is set for release, which is the preferred measure of the Fed for assessing inflation.
If the second quarter also records negative growth, it would be an economic recession as per the definition provided by analysts.
The National Bureau of Economic Research, on the other hand, uses a different definition, and a declaration from them is expected to come later.
The euro also recorded a decline against the safe-haven yen by 0.87% to come down to 138.450. It dropped 1.1% against the Swiss franc to trade at 0.975.
A 0.07% drop was recorded in the Japanese yen against the greenback, while the Sterling was down 0.15% against the dollar.
