The euro fell to a new 20-year low on Monday after Russia’s decision to shut down a major gas pipeline to Europe intensified an energy crisis that has dealt a heavy blow to the region’s economy.
The common currency fell as much as 0.7% to $0.988 in London trade, the lowest level since 2002. European shares also fell, with the regional Stoxx 600 index down 1.4%, the German Dax by 2.6% and the French Cac 40 by 1.8%. per cent. London’s FTSE 100 fell 0.9 percent.
In energy markets, Dutch TTF gas futures, the benchmark European contract, rose by more than a third to 284 euros per megawatt hour, climbing back to record highs that topped 340 euros just under two years ago weeks.
The price hike comes as European capitals struggle to contain growing concerns about the “weaponisation” of gas supplies on the continent.
Sweden and Finland scrambled over the weekend to provide government funding to utilities struggling with collateral requirements on the exchanges, warning that without intervention energy markets could seize up and potentially threaten the wider financial system. wide.
The UK energy sector has warned that electricity generators may also need government support, with either Liz Truss or Rishi Sunak expected to be announced as prime minister later on Monday after the party’s leadership campaign concludes conservative Sterling fell 0.1 percent to $1.15 in late trading, paring earlier falls.
The volatile start to the week came after Russia indefinitely suspended natural gas flows through the Nord Stream 1 pipeline, further limiting Europe’s energy supplies and raising recession risks in the bloc. State-owned Gazprom said the suspension was due to a technical failure.
“This has long been a scenario feared by markets and priced in with some probability, but it now appears to have become a reality,” said analysts at RBC Capital Markets in London.
Teresa Ribera, Spain’s head of Energy and Environment, said that Russian President Vladimir Putin “is pushing the resilience of European citizens to the limit and undermining trust in EU institutions”.
Ribera, councilor for ecological transition, said in an interview with the newspaper Expansión that “Putin has dynamized the energy market”. “It is broken and immediate intervention is required. It is no longer operating according to normal rules and the European Union must act urgently to stop the blackmailing of the Russian leader.”
EU energy ministers will meet for an emergency meeting on Friday to discuss measures to control spiraling natural gas prices.
Analysts said the latest twist in the energy crisis would raise the stakes for European Central Bank policymakers, who are also meeting this week. Several big investment banks, including JPMorgan, Bank of America and Goldman Sachs, said last week they expected the central bank to raise rates by 0.75 percentage points, the biggest increase since 1999, as they battled record inflation. Although the increase in the price of gas could worsen the inflationary situation, it also darkens the prospects for economic growth.
“The ECB’s task is greatly complicated by uncertainty over Russian gas supplies,” said Brian Martin, head of G3 economic research at ANZ. “Moscow’s decision not to restart gas flows through the Nord Stream pipeline raises downside risks to growth while raising the outlook for inflation.”
The euro reached parity with the dollar in July for the first time in 20 years as investors sought safe-haven assets in a worsening global economic environment.
Eurozone and UK government bonds came under pressure on Monday, with the benchmark 10-year German Bund yield adding 0.05 percentage point to 1.57% and the Italian equivalent yield rising 0.12 percentage points to 3.95%. The 10-year gilt yield rose as much as 0.08 percentage point to touch 3% for the first time since 2014, reflecting a sharp fall in the price of the British debt instrument.
US markets were closed on Monday for the Labor Day holiday, which could reduce overall trading volume and increase liquidity.
Additional reporting by Barney Jopson
