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Euro hits new 20-year low after Russia halts gas supplies

The euro slides to $0.9876 after Russia scraps a Saturday deadline for flows from the Nord Stream pipeline to resume.

Published On 5 Sep 2022

Theeuro has sunk below $0.99 a fresh 20-year low after Russias halt to gas supplies down its main pipeline toEurope heightened fears in regards to a deepening energy crisis over the region.

The euro has been increasingly correlated with gas prices lately, with the former falling when prices of the power source rose.

Europe is scrambling to wean itself off Russian supplies and build reserves prior to the cold winter season but investors reckon the hit to its economy will undoubtedly be huge.

Russia scrapped a Saturday deadline for flows down the Nord Stream pipeline to resume, citing an oil leak in a turbine. It coincided with the Band of Seven finance ministers announcing a cost cap on Russian oil.

Theeuroslid to $0.9876 in earlyEuropean trade on Monday, the cheapest level since 2002, while sterling with the British economy also susceptible to rising gas prices dropped half of a percent to a fresh two-and-a-half year low of $1.1444.

Gas flows have already been curtailed a lot more than expected and we’ve already seen proof demand destruction weighing on activity, said Michael Cahill, a strategist at Goldman Sachs.

We have now expect theEuroto fall further below parity ($0.97) and remain around that level for another half a year, he added.

Gas pipes in Lubmin
Pipes at the landfall facilities of the Nord Stream 1 gas pipeline [File: Hannibal Hanschke/Reuters]

In exactly what is a huge week for the euro, investors may also be finding your way through the European Central Bank (ECB) meeting on Thursday and markets have priced a near-80-percent potential for a super-sized 75 basis point (bp) interest hike.

ECB officials will undoubtedly be keen to see theeuro, which includes lost 20 percent of its value during the past 90 days, stabilise. Which will feed in to the desire to try to tame inflation through tightening policy.

Other currencies that have a tendency to perform badly when market confidence is shaken also fell on Monday. The risk-sensitive Australian dollar slid 0.5 percent and was near a seven-week low at $0.6774.

The dollars appeal because the go-to currency this season helped it to go up even against safe-haven currencies. JAPAN yen, down at 140.35 per dollar, was under great pressure near a 24-year low.

The initial order effect appears to be that the heightened geopolitical risk and consequent adverse global demand shocks is going to be the consequences dominating, said Vishnu Varathan, the top of economics and strategy at Mizuho Bank in Singapore.

The adverse demand shocks in an exceedingly unsavoury geopolitical environment are most likely likely to trigger, and reflect, safe demand for the united states dollar theEuropean currencies are perhaps likely to function as worst hit and on the trunk foot.

The offshore Chinese yuan fell to a fresh two-year low, with the dollar gaining 0.4 percent to 6.9543 per dollar, as worries linger over COVID-19 lockdown measures in the united kingdom.

Chinas southern tech hub of Shenzhen said it could adopt tiered anti-virus restriction measures beginning on Monday, while Chengdu announced an extension of lockdown curbs, because the country grapples with new outbreaks.

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