Euro crashes to the lowest levels seen since the energy crisis of 2022 – London Business News | Londonlovesbusiness.com

The composite eurozone PMI slumped to 48.1, thanks to an unexpected dive to 49.2 in the services sector that has hugely increased the odds of a 50bp rate cut in September.

The euro is decisively breaking through key levels, falling below 1.04 for the first time since the energy crisis in late 2022.

Having crossed this threshold, parity is no longer a huge leap. German two-year yields have dropped 15bps as the market has priced in 38bps of easing for December and around 150bps in 2025.

Compare that to the US, where less than 75bps is priced before 2026. This rapid widening in the rate spread is compounding the risk of moves driven by the escalation in Ukraine.

The modest momentum in the services sector was the one thing buttressing eurozone growth – if that pillar is removed, a recession becomes inevitable, as a recovery in the manufacturing sector is not a near-term possibility.

The growth risks have clearly intensified, and that will increase the pressure on policymakers to step in and support the economy with a faster pace of easing. The eurozone is approaching a crisis without it. But while rates can pull the economy out of contraction, it cannot fix the underlying structural issues that are keeping growth subdued.