The euro fell below 99 cents for the first time in nearly two decades, while the pound was on the ropes on Monday as gas supplies to Russia were halted through its main pipeline to the Europe has raised concerns about energy prices and growth.
The euro slipped to $0.9880 in Asian trade, the lowest level since 2002, while the pound hit a fresh 2.5-year low of $1.14445 and remained near its low pandemic.
Meanwhile, the US dollar index, which measures the greenback against a basket of six currencies, with the euro the most heavily weighted, hit a new two-decade high, hitting a high of 110.25 .
Russia scrapped the deadline for resuming flows in the Nord Stream pipeline on Saturday, citing an oil leak at a turbine. This coincided with the Group of Seven finance ministers announcing a cap on Russian oil prices.
The pound was also weighed down by concerns over rising energy costs. UK Foreign Secretary Liz Truss said over the weekend that she would take immediate action to tackle rising energy bills and increase energy supplies if she were to become Britain’s next prime minister , as expected.[nL8N30B0CP]
“We can’t have any confidence in the outlook for natural gas in Europe, and that’s negative for the euro. It’s highly dependent on Putin,” said Osamu Takashima, chief strategist at Citigroup Global Markets.
The yen, at 140.38 to the dollar, was under pressure near a 24-year low. The risk-sensitive Australian dollar slipped 0.41% and was near a seven-week low at $0.6780.
“The first-order effect appears to be that increased geopolitical risk and resulting adverse global demand shocks are likely to be the dominant effects,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, told Reuters. Singapore.
“Adverse demand shocks in a very unsavory geopolitical environment will likely trigger and reflect safe demand for the US dollar…European currencies may be the hardest hit and pull back.”
Outsized rate hikes are the order of the day this week. Markets have priced a nearly 80% chance of a 75 basis point (bp) hike in Europe and a nearly 70% chance of a 50bp hike in Australia.
“A hawkish ECB might have been expected to bring some sort of tailwind to the euro. But instead what you might get is the political compromise and dilemma that arises “, said Varathan.
In the United States, prices for a 75 basis point hike this month eased somewhat after a mixed jobs report on Friday, which contained some hints of a loosening labor market.
Fed funds futures imply about a 58% chance of a 75 basis point rise.
Elsewhere in Asia, the offshore yuan
South China’s tech hub Shenzhen said it would adopt tiered virus restriction measures from Monday, while Chengdu announced an extension of lockdown restrictions as the country grapples with new epidemics.
(Reporting by Rae Wee in Singapore and Kevin Buckland in Tokyo; Editing by Jacqueline Wong and Ana Nicolaci da Costa)
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