Euro tumbles under $0.99 after Russia halts gas supplies to Europe

The euro declined below on Monday $0.99 for the first time in 20 years, after Russia stated it would shut off its main gas supply pipeline to Europe indefinitely.

The EU’s common currency was trading around 0.9908 versus the dollar by 9:45 a.m. London time, having jumped off lows of $0.9881 hit earlier in the day.

The dollar index broken a fresh two-decade high as the British pound slid on fears over energy supply and European economic growth. The dollar index also measures the greenback against six major currencies.

It would not resume its supply of natural gas to Germany through the key Nord Stream 1 pipeline, blaming a malfunctioning turbine, according to a statement of Russian energy supplier Gazprom on Friday.

This announcement came hours after the Group of Seven economic powers agreed on a plan to apply a price cap on Russian oil.

It happens after of a meeting of the European Central Bank Thursday, when economists expect it to bring up its benchmark deposit rate from 0 to 0.5 percent or 0.75 percent against a backdrop of concern over Europe’s ability to meet its energy needs this winter and the potential for a hit to growth.

“We expect that Russia is respecting the contracts that they have, but even if the weaponization of energy will continue or will increase in response to our decisions, I think that the European Union is ready to react,” the EU’s economics commissioner Paolo Gentiloni said to CNBC.

“Of course, we have to save energy, we have to share energy, we have a high level of storage and we are not afraid of Putin’s decisions.” he stated.

Many investors were seeking to short the euro and European government bonds, which have seen a spike in yields over the last month on the expectation of interest rate rises, according to global macro strategist at investment advisory Vanda Research Viraj Patel.

“These markets are selling off on any bad news related to the Russia gas flows narrative, whilst reluctant to rally on any marginal improvement in the energy crisis,” Patel emailed CNBC.

“The market is under-appreciating the chance for policy intervention from government officials helping to reduce stagflation risks on the continent,” he added. This means the case for a euro rise to 1.05 against the dollar now looked equal to, if not greater, than the case for a fall to 0.95.

Yesterday the German government disclosed a €65 billion package to decrease consumer energy bills and support businesses.

Moreover, the pound was trading at 1.1465 toward the dollar as the U.K. prepares to find out who will be its new British prime minister. The new premier will be obliged to think with a growing cost-of-living crisis fuelled by soaring energy bills.

Sterling declined 4.5 percent against the dollar in August, its worst month since Brexit. One analyst forecast that it would “plumb new depths” due to political and economic uncertainty, potentially hitting $1.05 by the middle of next year.

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