The euro sank to a two-decade low versus the dollar on Tuesday as a jump in natural gas prices reignited worries about the euro zone economy and data showed business growth in the region slowed sharply in June.
News that Norwegian offshore workers began a strike on Tuesday that will reduce oil and gas output added to fears about a European energy shortage.
The euro dropped by as much as 1.3% against the dollar to $1.0281, its weakest since December 2002. Versus the Swiss franc, it dropped 0.9 %to 0.9925 francs, its lowest since 2015.
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.
According to George Saravelos, global head of forex research at Deutsche Bank, “if Europe and the US slip-slide into a recession in Q3 while the Fed is still hiking rates, these levels (0.95-0.97 in EUR/USD) could well be reached.”
The dollar index – which measures the currency against six counterparts – slipped 0.2% to 106.88, pulling away from yesterday’s peak of 107.27, a level not seen since late 2002.
Commodity-linked currencies strengthened as copper prices climbed. Some investors returned to the market today after heightened recession fears sent the red metal to its lowest level in nearly 20 months.
The Australian dollar rose 0.7% to 0.6822 against the US dollar after recently hitting its lowest since May 2020 at 0.6762.
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.
Investors are watching out this week for the U.S. Federal Reserve and European Central Bank minutes from their most recent policy meetings, as well as U.S. payroll numbers for June due on Friday.
Earlier, news that Norwegian offshore workers began a strike on Tuesday that will reduce oil and gas output compounded fears about a European energy shortage.
U.S. crude settled down 8.24% at $99.50 per barrel and Brent settled at $102.77, down 9.45%. [O/R]
Spot gold dropped 2.4% to $1,765.70 an ounce prompted by strength in the U.S. dollar and rising rates.
Bitcoin was last up 1.6% at $20,526.50.
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