Top Stories
Euro falls to lowest since 2002 on concerns over energy prices
Global Banking & Finance Review®
Company
By Stefano Rebaudo
(Reuters) -The euro tumbled to a new two-decade low on Wednesday as fears over rising energy prices and potential shortages cast a long shadow over the bloc’s economy, while demand for safe-haven assets drove the dollar to fresh 20-year highs.
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.
Meanwhile, Goldman Sachs raised its natural gas price forecasts, saying that a complete restoration of Russian gas flows through Nordstream1 was no longer the most likely scenario.
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 non-delivery (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 euro fell 0.7% against the dollar to 1.0186, the first time below 1.02 since December 2002.
Euro zone consumers cut spending on food, drinks and tobacco for the second straight month in May amid a spike in prices, according to estimates from the European Union statistics office Eurostat released on Wednesday.
The divergence between central banks’ tightening cycles across the Atlantic remained in investors’ focus.
“The big question is whether this deterioration in growth prospects is enough to curtail tightening cycles – especially that of the Fed,” ING analysts said.
They reckon the forex market will consolidate the current levels on Wednesday ahead of Federal Open Market Committee minutes from its June meeting, due at 1800 GMT.
“The general view that the Fed might ultimately have more opportunity than many other central banks to continue policy normalization,” Unicredit analysts said.
The dollar index – which tracks the greenback against six counterparts – rose 0.4% to 107.02 its highest since 2002.
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 0.4% to a fresh 7-year low at 0.9897.
“In the current circumstances, the traditional safe haven currencies of the US dollar, Swiss franc and yen appear set to continue to outperform in the near-term,” MUFG analysts said.
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 dollar dropped 0.3% to 135.36 yen. It hit at the end of June its highest since 1998 at 137.
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 fell 1.7% and was last trading at $20,088. Ether rose 0.5% at $1,138.
(Reporting by Stefano Rebaudo; Editing by Simon Cameron-Moore, William Maclean)
The euro is the official currency of the Eurozone, used by 19 of the 27 European Union countries. It was introduced in 1999 and is symbolized by €.
Foreign exchange, or forex, refers to the global marketplace for trading national currencies against one another. It is the largest financial market in the world.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to keep the economy stable.
A central bank is a national institution that manages a country’s currency, money supply, and interest rates. It also oversees the banking system and implements monetary policy.
Explore more articles in the Top Stories category
