Euro To US Dollar Index Falls - Touching Levels Not Seen In 20 Years
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Summary:
- Thursday's European Central Bank (ECB) meeting during this crucial week for the euro.
- Russia cuts off Nord Stream gas supply.
- A crucial week for the Euro.
- But is still at risk as energy issues become more apparent.
Euro Index suffers in the wake of Russia Turning off the gas taps
Monday saw a new 20-year low for the euro as concerns about a worsening energy crisis in the area increased as Russia cut off gas supplies to Europe through its main pipeline. In recent months, there has been an increase in the correlation between the euro and natural gas prices, with the latter declining as energy prices rise. Before the chilly winter months, Europe is frantically trying to wean itself off Russian supply and build up reserves, but many predict a significant economic damage. Invoking an oil leak in a turbine, Russia postponed a Saturday deadline for the Nord Stream pipeline to begin carrying oil. It happened at the same time that the Group of Seven finance ministers announced a limit on Russian oil prices.
Early in European trading, the euro fell to $0.9876, its lowest level since 2002, before bouncing back to $0.9939, but down 0.2% on the day.
"Gas flows have been curtailed even more than expected and we have already seen evidence of demand destruction weighing on activity," said Michael Cahill, a strategist at Goldman Sachs. "We now expect the Euro to fall further below parity ($0.97) and remain around that level for the next six months," he added.
Investors are gearing up for Thursday's European Central Bank (ECB) meeting during this crucial week for the euro, as markets have priced in a nearly 80% possibility of a massive 75 basis point (bp) interest rate hike. The stabilization of the euro, which has lost over 8% of its value over the last three months, will be welcomed by ECB policymakers. That will fuel the desire to tighten policy in an effort to control inflation.
EUR/USD Price Chart
Sources: finance.yahoo.com, reuters.com
