EUR/USD extends decline below 0.9800, the lowest since Oct 2002

• A combination of factors drags EUR/USD to its lowest level since October 2002 on Friday.
• Expectations of an aggressive Fed rate hike and risk aversion lift the dollar to a new 20-year high.
• Disappointing French and German PMIs fuel recession fears and weigh on the euro.

The pair EUR/USD is under further selling pressure on Friday and falls to its lowest level since October 2002, around the 0.9765 zoneat the start of the European session.

After the volatility of the previous day, US dollar regains strong positive traction and drags the EUR/USD pair lower. In fact, the dollar index, which measures the evolution of the greenback against a basket of currencies, reaches a new 20-year high and remains supported by the more aggressive stance adopted by the Fed.

It is worth mentioning that the US central bank signaled on Wednesday that likely to carry out more aggressive rate hikes to limit inflation. This fact, coupled with the prevailing risk aversion environment, provides additional support for the dollar as a safe haven. Market sentiment remains fragile amid rising concern about a deeper global economic recession.

On the other hand, the euro is pressured by the risk of a new escalation of geopolitical tensions, especially after Russian President Vladimir Putin announced a partial military mobilization. Also, the energy crisis in Europewhich could drag the region’s economy deeper into recession, also weighs on the common currency.

Market fears were fueled by the release of Preliminary manufacturing PMI data from France and Germany, the two largest eurozone economies, were worse than expected. Furthermore, Friday’s drop could also be attributed to some technical selling below the 0.9800 level, which could have already set the stage for further losses.

EUR/USD technical levels