April 17, 2024

Euro Declines To Lowest Since 2002 Due To Energy Prices Concerns

On Wednesday, the euro declined to a low of two decades because rising prices of energy and potential shortages fueled concerns about the future of the bloc’s economy. Meanwhile, the US dollar rose to reach its highest level in 20 years because of increased demand for safe-haven assets.

Energy dilemma

Equinor announced on Wednesday that the gas and oil fields that had been affected due to the petroleum sector’s strike in Norway were going to return to their full operation in the next few days. Meanwhile, Goldman Sachs stated that it was no longer likely to restore the full flow of Russian gas via Nordstream1, which saw it increase its forecasts for natural gas prices.

According to analysts, oil prices are going to surge, as supply will continue to stay tight and because front-month spreads have managed to hold up, even though prices fell on Tuesday. Currency experts said that the euro was not just down because of the non-delivery of gas. They said that it was the energy prices that were taking their toll because they are higher in Europe, as compared to the US.

The euro recorded a 0.7% decline against the US dollar, which brought it to 1.0186, which is the first time that the currency has gone below the 1.02 mark after 2002.

Data impact

Eurostat, the statistics office in the European Union, disclosed on Wednesday that there was a reduction in spending on tobacco, drinks, and food for the second month in a row in May in the Eurozone because of a rise in prices.

Investors were focused on the divergence in the tightening cycles of the central banks across the Atlantic. Analysts said that the important question to ask was if tightening cycles would be curtailed because of the impact on economic growth prospects, especially where the Fed is concerned.

The analysts said that the general idea was that the US central bank would have a greater opportunity to ensure policy normalization as compared to other global central banks.

Currency performance

There was a 0.4% increase in the US dollar index, which tracks the performance of the currency against six of its peers, as it reached 107.02, which is the highest it has been since 2002. As far as the euro is concerned, the single currency dropped to its lowest value against the Swiss franc.

This was after the 2015 decision of the Swiss National Bank to abandon its currency cap. Therefore, the euro had lost 0.4% against the franc and was trading at 0.9897, which is a low of 7 years. Analysts said that in the current situation, it appears that safe-haven currencies like the Swiss franc, the US dollar, and the Japanese yen will continue to outperform the rest.

The Japanese yen also saw some support after inflation expectations of Japanese households rose in the three months leading to June. The dollar declined 0.3% against the yen to reach 135.36. At the end of the previous month, the currency had reached 137, which was the highest it had been since 1998.

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