Euro slumps to 20-year low against U.S. dollar

FRANKFURT, July 5 (Xinhua) -- The Euro on Tuesday slumped against the U.S. dollar, hitting a 20-year low of 1.029 dollars in the shadow of an economic recession in the euro zone.

The common currency shared by 19 European member states continued to weaken, losing over one percent against the U.S. dollar. The reference rate of euro against the U.S. dollar was 1.0455, according to the European Central Bank (ECB).

The euro has dropped over nine percent against the U.S. dollar since the beginning of this year, according to the ECB.

The Manufacturing Purchase Managers' Index (PMI), an indicator to gauge the direction of economic trends, in the euro area fell to 52.1 in June from 54.6 in May, according to S&P Global.

"While the June PMI surveys indicate ongoing growth of business activity at the end of the second quarter, a sharp deterioration in the rate of growth raises the risk of the region slipping into economic decline in the third quarter," said S&P's Global report, published on Tuesday.

Inflation in the euro area has been rising, which market observers say could hurt consumer confidence and weigh on economic growth. According to the statistical office of the European Union, annual inflation in the euro area soared to 8.6 percent in June, up from 8.1 percent in May.

Compared to its U.S. counterpart, the ECB appears to be less aggressive in tightening up its monetary policies, adding to the downward pressure of the common currency.

The ECB ended its bond-buying program in June, and is poised to increase interest rates in July. Nevertheless, the government bonds of certain member states, including Italy, have risen significantly since the ECB announced its decision to hike rates.

The ECB was forced to prop up some government bonds by launching an anti-fragmentation mechanism, a move that will inevitably make its tightening policies less effective and create downward pressure on the value of the euro.

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