The euro sank below $0.99 on Monday, hitting a new 20-year low, after Russia’s disruption of gas supplies via its main pipeline to Europe heightened fears of a crisis. deepening energy in the region.
In recent months, the euro has become increasingly correlated with natural gas prices, with the former falling when energy source prices rise.
Europe is scrambling to shed 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 rise in interest rates of 75 basis points (bp).
ECB officials will want the euro, which has lost around 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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