In previous months, there has been an increase in the correlation between the euro and prices of natural gas, with the latter declining as energy prices increase.
Prior to the actual chilly winter season, Europe is frantically trying to emancipate Russian supply and develop storage, but many predict a significant economic disruption.
Invoking an oil spill in a turbine, Russia postponed a Saturday schedule for the pipeline to begin carrying oil. This unexpected decision took place around the same time that the Group of Seven finance ministers announced a limit on Russian oil prices.
Today in European trading, the euro fell to $0.9876, its biggest drop in 20 years, prior to actually bouncing back to $0.9939, but down 0.2% on the day.
The Strategist from Goldman Sachs, Michael Cahill said that “gas flows have been curtailed even more than expected and we have already seen evidence of demand destruction weighing on activity,” going on to say that “we now expect the Euro to fall further below parity ($0.97) and remain around that level for the next six months.”
Several currencies that were susceptible to the rising cost of energy subsequently decreased. GBP fell by 0.5 % in early trading to $1.1444, a fresh 2.5-year low, as investors awaited the election of the British prime minister.
As the euro fell, the dollar index (DXY), momentarily reached 110.27, its highest level since June 2002. However, with a drop of 0.2%, it returned to decline, ultimately falling to 109.74.
Investors are gearing up for the European Central Bank (ECB) meeting on September 8 during this crucial period for the euro, as markets have factored in a nearly 80% possibility of a massive 75 bps interest rate increase.
The stabilization of the euro, which has dropped over 8% of its worth over the last 3 months, will be welcomed by ECB policymakers. That will fuel the urge to tighten policy in an effort to control inflation.
On September 5, additional currencies that frequently exhibit poor performance whenever market confidence is weakened notably decreased. The risk-averse Australian dollar dropped to $0.6773, its lowest level in seven weeks.
This year, the dollar’s reputation as the preferred currency enabled it to gain quite some ground. It increased to the Japanese yen 140.59.
As concerns about China’s COVID-19 lockdown restrictions persist, the overseas yuan dropped to a low of 6.9543/USD, the lowest level in 2 years.
As the nation struggles with new cases, Shenzhen, China’s southern tech powerhouse, stated that it would start implementing tier-based anti-virus control steps today. Chengdu also declared an expansion of lockdown limitations.