Euro sinks to new 20-year low after Russian gas shipments halted

Euro sinks to new 20-year low after Russian gas shipments halted

LONDON, Sept 5 – The euro sank below $0.99 on Monday, hitting a new 20-year low, after Russia’s disruption of gas supplies through its main pipeline towards Europe accentuated fears of a deepening energy crisis in the region.

* In recent months, the euro is increasingly correlated with natural gas prices, with the former falling when energy source prices rise.

* Europe is scrambling to wean off Russian supplies and build up reserves ahead of the cold winter months, but investors see the hit to its economy as huge.

* Russia on Saturday canceled the deadline to resume gas flows through the Nord Stream pipeline, citing an oil leak from a turbine. This coincided with the announcement by the Group of Seven economy ministers to limit the price of Russian oil.

* The euro fell as low as $0.9876 in early European trading, its lowest level since 2002, before recovering to trade 0.2% lower at $0.9939.

* Other currencies vulnerable to spiraling energy prices also fell. In early trading, the pound shed as much as half a percentage point to a fresh two-and-a-half-year low of $1.1444, with traders also awaiting the announcement of the new British prime minister, due at 1130 GMT.

* The dollar index, which measures the greenback’s performance against a basket of currencies, briefly hit 110.27, its highest level since June 2002, as the euro fell. It later fell 0.1% to 109.92.

* In this very important week for the euro, investors are also preparing for Thursday’s meeting of the European Central Bank (ECB) and markets have priced in almost 80% the possibility of a 75-point interest rate hike basic (bp).

* ECB officials will want the euro, which has lost about 8% of its value in the last three months, to stabilize. That will fuel the desire to try to tame inflation by tightening monetary policy.

* The attractiveness of the dollar as a reference currency this year has helped it rise even against safe-haven currencies. Against the Japanese currency, the dollar rose to 140.59 yen.

* The offshore yuan hit a new two-year low of 6.9543 per dollar on concerns over China’s COVID-19 lockdown measures.

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