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Dollar gains, euro falls as energy drives currency swings
Global Banking & Finance Review®
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By Herbert Lash
(Reuters) -The dollar rose to fresh 20-year highs on Wednesday and the euro tumbled to a new two-decade low as rising energy prices and potential shortages cast a long shadow over the euro zone’s economy.
The dollar index, which tracks the greenback versus a basket of six currencies, shot above 107, while the euro tumbled below $1.02, both for the first time since December 2002.
The dollar has strengthened as energy prices are high and the Federal Reserve has been raising interest rates more quickly than most other central banks, said Shahab Jalinoos, global head of macro trading strategy at Credit Suisse.
“You have traditional macro factors that are driving dollar strength right now rather than a risk-adverse move,” Jalinoos said.
The United States is a net energy exporter, while Germany is running a trade deficit for the first time since 1991, he said.
“High interest rates in the U.S. and a trade shift which is beneficial to the U.S. adds to sustainability of the dollar’s strength,” he said.
The dollar index rose 0.544%, with the euro down 0.87% to $1.0177.
Goldman Sachs raised its natural gas price forecasts, saying that a complete restoration of Russian gas flows through Nordstream 1 was no longer the most likely scenario.
All oil and gas fields that were affected by a strike in Norway’s petroleum sector are expected to be back in full operation within a couple of days, Equinor said on Wednesday.
Analysts expect a quick resurgence in oil prices as supply tightness persists and as front-month spreads have held up despite Tuesday’s price fall.
“It is not only the threat of nondelivery (of gas) that is weighing on the euro,” Moritz Paysen, forex and rates adviser at Berenberg, said.
“The already-high energy costs are a burden. Energy costs in Europe are many times higher than in the U.S.,” he added.
The divergence between central banks’ tightening cycles across the Atlantic remained in investors’ focus.
The euro dropped to its lowest level against the Swiss franc since the Swiss National Bank abandoned its currency cap in 2015.
The single currency was down 0.6% to a fresh 7-year low at 0.9879.
Yen gained a little support from some safety bids after Japanese households’ inflation expectations strengthened in the three months to June, with the ratio of homes expecting price rises over the coming year hitting the highest level in 14 years.
The Japanese yen strengthened 0.16% to 135.67 per dollar.
Bank of Japan has said it would not withdraw monetary stimulus because inflation is due to soaring fuel and raw material costs blamed on the Ukraine crisis and will likely prove temporary.
Bitcoin last rose 0.12% to $20,191.98.
Currency bid prices at 10:32 AM (1432 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 107.0900 106.5300 +0.54% 11.945% +107.2700 +106.3400
Euro/Dollar $1.0178 $1.0265 -0.82% -10.45% +$1.0277 +$1.0163
Dollar/Yen 135.6650 135.8800 -0.14% +17.87% +135.9950 +134.9500
Euro/Yen 138.11 139.46 -0.97% +5.98% +139.5000 +137.2800
Dollar/Swiss 0.9704 0.9686 +0.20% +6.40% +0.9742 +0.9672
Sterling/Dollar $1.1902 $1.1959 -0.44% -11.96% +$1.1989 +$1.1877
Dollar/Canadian 1.3055 1.3029 +0.19% +3.25% +1.3064 +1.3013
Aussie/Dollar $0.6783 $0.6800 -0.21% -6.65% +$0.6826 +$0.6772
Euro/Swiss 0.9879 0.9940 -0.61% -4.74% +0.9949 +0.9878
Euro/Sterling 0.8549 0.8585 -0.42% +1.77% +0.8603 +0.8541
NZ $0.6142 $0.6174 -0.52% -10.26% +$0.6191 +$0.6136
Dollar/Dollar
Dollar/Norway 10.1305 10.0630 +0.70% +15.03% +10.1600 +10.0220
Euro/Norway 10.3132 10.3275 -0.14% +2.98% +10.3770 +10.2644
Dollar/Sweden 10.5505 10.5030 -0.41% +17.00% +10.5763 +10.4678
Euro/Sweden 10.7361 10.7803 -0.41% +4.91% +10.7990 +10.7314
(Reporting by Herbert Lash in New YorkAdditional reporting by Stefano RebaudoEditing by William Maclean and Matthew Lewis)
The dollar index measures the value of the U.S. dollar against a basket of six major currencies, indicating its strength in the foreign exchange market.
A trade deficit occurs when a country's imports exceed its exports, indicating that it is buying more from other countries than it is selling to them.
Interest rates are the cost of borrowing money, expressed as a percentage of the total loan amount, affecting economic activity and currency values.
The euro is the official currency of the Eurozone, used by 19 of the 27 European Union member states, facilitating trade and economic stability.
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