FOREX-Euro just off two-decade low, volatility at highest since March 2020

·3 min read

* Euro just off its two decade low

* Rising risk appetite support the single currency

* Swiss Franc hovering around 7-year high vs euro

* Aussie dollar up on commodity prices rebound

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Stefano Rebaudo

July 7 (Reuters) - The euro edged higher on Thursday, supported by rising risk appetite but still within striking distance of its two-decade low as surging energy prices fuel recession fears.

Meanwhile, implied volatility in the forex market was still at its highest levels since late March 2020 at 11.2%, reflecting a nervous market while investors look at the parity between the single currency and the dollar.

Equities managed gradual gains on Thursday as investors grappled with the risks of a recession and a potential pause in interest rate hikes.

"Parity (between the euro and the dollar) is within reach, and one can expect the market to want to see it now," said Moritz Paysen forex and rates advisor at Berenberg.

The euro rose 0.1% to 1.019 after hitting a two-decade low at 1.01615 on Wednesday.

According to George Saravelos, global head of forex research at Deutsche Bank, "if Europe and the U.S. slip-slide into a recession in Q3 while the Fed is still hiking rates, these levels (0.95-0.97 in EUR/USD) could well be reached."

"The two key catalysts to mark a turn in the USD embedded in our forecasts are a signal that the Fed is entering a protracted pause in its tightening cycle and/or a clear peak in European energy tensions via an end to Ukraine hostilities," he said.

The dollar index -- which measures the currency against six counterparts -- slipped 0.1% to 106.97, pulling away from Wednesday's peak of 107.27, a level not seen since late 2002.

Commodity-linked currencies strengthened as copper prices climbed. Some investors returned to the market on Thursday after heightened recession fears sent the red metal to its lowest level in nearly 20 months.

The Australian dollar rose 0.6% to 0.6821 against the U.S. dollar after recently hitting its lowest since May 2020 at 0.6762.

The Swiss Franc was still hovering around its highest since 2015 against the euro at 0.9872.

Earlier this week, inflation rising above the Swiss National Bank's (SNB) 0-2% target range for the fifth month fuelled talks that the central bank could soon tighten its policy. Last month it hiked its policy rate for the first time in 15 years.

The SNB has signalled it is prepared to see the Swiss franc strengthen to choke off imported inflation.

Britain's pound rose versus a weakening dollar on Thursday after hitting a more than two-year the day before as Prime Minister Boris Johnson clung to power despite the resignation of key cabinet members.

Sterling was up 0.3% to 1.1935, while being flat against the single currency at 85.48 pence.

Analysts said that the pound was mostly moving on broader economic concerns about a global recession, rather than Britain's political turmoil.

Bitcoin rose 0.2% and was last trading at $20,413. Ether fell 0.9% to 1,174.

(Reporting by Stefano Rebaudo; Editing by Kim Coghill)

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