Euro falls below parity on gas supply concerns

  • The euro fell below the value of the US dollar on Monday for the second time this year.
  • The imminent shutdown of Gazprom for maintenance of the Nord Stream 1 gas pipeline to Europe put pressure on the euro.
  • The dollar rose ahead of the Federal Reserve’s Jackson Hole symposium this week.

The euro fell below the value of the US dollar on Monday, slipping below parity on fears of a worsening gas shortage in Europe. The decline came just days before the Federal Reserve emphasized its goal of tackling high inflation at its symposium in Jackson Hole, Wyoming.

The euro fell 0.7% to $0.9968, marking the second time in a month and this year the common currency has traded below $1 against the greenback. The latest decision came after Russian state energy company Gazprom unexpectedly announced on Friday that it would close the Nord Stream 1 gas pipeline to Europe for maintenance between August 31 and September 2.

Benchmark European natural gas prices soared on Monday and Gazprom’s move sparked speculation of an extended shutdown of the key pipeline.

“The energy shock seems certain [it will] drive Europe into a recession,” Marc Chandler, chief market strategist at Bannockburn Global Forex, in a Monday note in which he pointed out that natural gas prices in Europe jumped nearly 380% to present in 2022.

“Only a recovery from the $1.0050-60 zone helps stabilize the tone,” for the euro, said Chandler, who also noted that the euro zone’s preliminary reading on industrial and services activity in the US August was expected on Tuesday. The composite PMI should show an increasingly deeper contraction.

The euro has fallen 12% against the US dollar this year, partly because Russia has cut gas flows to Europe since the Kremlin invaded Ukraine in late February. European officials have been working on gas storage and managing soaring energy prices as the winter season approaches.

The euro was also pushed lower with rising US Treasury yields as the Federal Reserve raised interest rates. Fed officials will meet this week for their conference in Jackson Hole, Wyoming, which will conclude with a speech by Fed Chairman Jerome Powell on Friday.

Powell is expected to focus on the influence of market expectations to reflect that the Fed is still on a hawkish monetary policy trajectory and has yet to pivot to signal rate cuts.

Powell is “likely to appear resolute and determined to fight inflation,” Societe Generale said in a note on Monday. So far, “the impact has been to trigger a very sharp rise in global bond yields which, along with weak Chinese data over the past week, has thrown global equities into a bit of a funk and given a big boost to the dollar. All this talk about the dollar having peaked sounds a bit jaded.”

US inflation hit a high of 8.5% in July even though it had cooled from 9.1% in June, a 41-year high. Powell will speak Friday at 10 a.m. Eastern Time.

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