FOREX-Euro slumps to two-decade low as recession fears bite

·2 min read

* Euro drops to lowest since end of 2002 as concerns build

* Dollar rises as Treasury yields rebound

* Yen near 24-year lows again

* Aussie dollar fails to gain traction after 50 bps rate hike

* Norway's crown drops nearly 1.2% as gas workers strike

By Marc Jones

LONDON, July 5 (Reuters) - The euro slumped to a two-decade low on Tuesday as the latest surge in European gas prices added to worries about a recession, while there was no stopping the dollar as U.S. Treasury yields staged a rebound.

Swathes of currencies were under pressure. The euro's 1% drop took it to its weakest since the end of 2002. Japan's yen was near 24-year lows again, while Norway's crown tumbled 1.2% as gas workers went on strike.

MUFG's head of global markets research, Derek Halpenny, said the risks of Europe backsliding into a recession looked to be growing after another big 17% jump in natural gas prices in both Europe and in Britain.

Concerns about how the European Central Bank will react were gnawing at sentiment after German Bundesbank chief Joachim Nagel had hit out at the ECB's plans to try and shield highly indebted countries from surging borrowing rates.

"It will continue to be very difficult for the euro to rally in any meaningful way with the energy picture worsening and risks to economic growth increasing notably," said MUFG's Halpenny.

The heavy selloff also saw the euro drop to the lowest against the Swiss franc since the Swiss National Bank abandoned its currency cap in 2015. It fell against sterling too although the pound has its own economic and political worries to cope with at the moment.

Even the Australian dollar failed to gain traction despite the country's first back-to-back 50 basis point interest rate hike in recent memory overnight, which also cemented the fastest run up in rates there since 1994.

The Aussie swooped 1% lower to $0.6787, after trading as high as $0.6895 earlier in the day. It is now down nearly 7% this year.

"We have had so many central banks hiking in these big increments that you are now getting talk of reverse currency wars," said Rabobank FX strategist Jane Foley, referring to where central banks need to hike rates just to stop their currencies from falling.

"It could get concerning" for a number of currencies, she added, especially if the U.S. Federal Reserve pushes ahead with large rate hikes in the coming months as expected.

The dollar's strength, meanwhile, nudged the yen back down toward a 24-year low. It was last at 135.79 per dollar.

(Reporting by Marc Jones; Editing by Jacqueline Wong and Bernadette Baum)

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