EUR/USD drops to lowest level in almost 20 years

The main currency pair has dropped almost 1% today and reached the lowest level since December 2002 amid a significant boost in USD demand. The move not only pushed the pair below May's lows but also below lows from the turn of 2016 and 2017, meaning that EURUSD traded at the lowest level in almost 20 years. While the greenback strength is currently playing a role in the major move, as it trades higher against most currencies, the Euro continues to struggle as the ECB has been behind other central banks with its policies. There has been an increasing divergence between the ECB and the FED which has managed to aggressively increase interest rates lately in an effort to tackle inflation while its European counterpart has had to be more passive as it remains wary of the real dangers of slowing the economy in a time where the Russia-Ukraine conflict is causing a spike in energy prices and general inflation. The ECB is caught between a rock and a hard place as it needs to raise interest rates to tackle inflation and boost its currency while simultaneously supporting struggling economies which are just recovering after 2 years of pandemic related issues. A rate increase is expected by the ECB in the near future but it will be essential to see how the markets react to this week's ECB minutes which will be released on Thursday as it seems that general confidence in the single market currency continues to decline.