10 and 5 euro banknotes.
Adrian Fillon | Nurphoto | Getty Images
LONDON — The euro fell below 99 cents for the first time in 20 years on Monday after Russia said it would close its main gas pipeline to Europe indefinitely.
The common EU currency was trading around 0.9911 against the dollar at 10:00 a.m. London time (5:00 a.m. ET), after hitting a low of $0.9881 hit earlier in the day.
The dollar index, which measures the greenback against six major currencies, also hit a new two-decade high as the pound slid on fears over energy supplies and European economic growth.
On Friday, Russian energy supplier Gazprom said it would not resume its natural gas supply to Germany via the key Nord Stream 1 gas pipeline, blaming a faulty turbine. The announcement came hours after the economic powerhouses of the Group of Seven agreed on a plan put in place a price cap on Russian oil.
The first month gas price at the Dutch hub TTF, a European benchmark for natural gas trading, was up nearly 30% on Monday morning, reaching 282.5 euros per megawatt hour.
It comes ahead of a meeting of the European Central Bank on Thursday, when economists expect it to raise its benchmark deposit rate from 0 to 0.5% or 0.75% amid concerns over the Europe’s ability to meet its energy needs this winter and the potential for a blow to growth.
“We expect Russia to respect the contracts it has, but even if the militarization of energy will continue or increase in response to our decisions, I think the European Union is ready to react,” he said. said Paolo Gentiloni, European Commissioner for the Economy. , told CNBC during the weekend.
“Of course we have to save energy, we have to share energy, we have [a] high level of storage and we are not afraid of Putin’s decisions.”
Viraj Patel, global macro strategist at investment consultancy Vanda Research, said many investors were looking to short euro and European government bonds, which have seen a surge. soaring yields over the past month on the anticipation of higher interest rates.
“These markets are selling all bad news related to the Russian gas flow narrative, while being reluctant to rally on any marginal improvement in the energy crisis,” Patel told CNBC via email.
However, Patel added that the bad news could start to turn into good news for underheld European assets.
“The market is underestimating the possibility of political intervention by government officials helping to reduce the risks of stagflation on the continent,” he said, meaning that the case of a rise in the euro to 1.05 against the dollar now looked equal to, if not better than, the case for a drop to 0.95.
Yesterday the German government announced a 65 billion euro package to cut consumers’ energy bills and support businesses.
Meanwhile, the pound was trading at 1.1498 against the dollar as the UK braces for find out who his new British Prime Minister is will be. The new Prime Minister will have to reckon with a growing cost of living crisis fueled by skyrocketing energy bills.
The pound fell 4.5% against the dollar in August, its worst month since Brexit, and an analyst’s forecast that it would “reach new depths” due to political and economic uncertainty, potentially hitting $1.05 by the middle of next year.